Principles Of Political Economy, by John Stuart Mill

That's French for "the ancient system," as in the ancient system of feudal privileges and the exercise of autocratic power over the peasants. The ancien regime never goes away, like vampires and dinosaur bones they are always hidden in the earth, exercising a mysterious influence. It is not paranoia to believe that the elites scheme against the common man. Inform yourself about their schemes here.

Principles Of Political Economy, by John Stuart Mill

Postby admin » Tue May 19, 2020 9:56 am

Principles Of Political Economy
by John Stuart Mill
Abridged, with Critical, Bibliographical, and Explanatory Notes, and a Sketch of the History of Political Economy, by J. Laurence Laughlin, Ph. D., Assistant Professor of Political Economy in Harvard University
1885

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[T]he more elite pre-1870 writers, with greater intellectual and social pretensions, often showed support for the Mormon Saints. Thomas Carlyle, one of the biggest names, was a warm admirer of Mormondom. So was his colleague, John Stuart Mill of the British East India Company. John Stuart Mill was the son of James Mill, who also claimed to be an economist. James Mill (1773-1836), a direct disciple of the satanic Jeremy Bentham, served for 18 years as the Examiner of Correspondence for the East India Company. This is another way of saying that he was one of the top bosses of British intelligence at that time. The elder Mill's job was to develop an intelligence picture based on the reports he received, and to promote policies to maximize profits and power, often with horrendous consequences for the people of India. The East India Company was much concerned with the manipulation of religious institutions, and systematically promoted the most backward and self-destructive tendencies in Hinduism and Islam, creating distortions which continue down to the present day. Others working for the British East India Company included the monetarist economist David Ricardo and the ideologue of genocide Thomas Malthus. [98]

After working for the British East India Company for 34 years, John Stuart Mill (1806-1873) took over the post of Examiner of Correspondence. The younger Mill directed a vast program of British cultural warfare, with special attention for the United States, which was seen along with Russia as a threat to the British Empire. He sponsored the career of the Scottish feudalist, neo-pagan, and proto-fascist Thomas Carlyle, who in turn became the main guru for Ralph Waldo Emerson of Harvard, the luminary of the Transcendentalist school. Emerson was famous for his concept of "self-reliance," which later morphed into the "rugged individualism" of Herbert Hoover, and the "you're on your own" doctrine of the current Republican Party.

-- Just Too Weird: Bishop Romney and the Mormon Takeover of America: Polygamy, Theocracy, and Subversion, by Webster Griffin Tarpley, Ph.D., by Webster Griffin Tarpley, Ph.D.


Contents

• Preface.
• Introductory.
o A Sketch Of The History Of Political Economy.
o Books For Consultation (From English, French, And German Authors).
o Preliminary Remarks.
• Book I. Production.
• Chapter I. Of The Requisites Of Production.
o § 1. The requisites of production.
o § 2. The Second Requisite of Production, Labor.
o § 3. Of Capital as a Requisite of Production.
• Chapter II. Of Unproductive Labor.
o § 1. Definition of Productive and Unproductive Labor.
o § 2. Productive and Unproductive Consumption.
o § 3. Distinction Between Labor for the Supply of Productive Consumption and Labor for the Supply of Unproductive Consumption.
• Chapter III. Of Capital.
o § 1. Capital is Wealth Appropriated to Reproductive Employment.
o § 2. More Capital Devoted to Production than Actually Employed in it.
o § 3. Examination of Cases Illustrative of the Idea of Capital.
• Chapter IV. Fundamental Propositions Respecting Capital.
o § 1. Industry is Limited by Capital.
o § 2. Increase of Capital gives Increased Employment to Labor, Without Assignable Bounds.
o § 3. Capital is the result of Saving, and all Capital is Consumed.
o § 4. Capital is kept up by Perpetual Reproduction, as shown by the Recovery of Countries from Devastation.
o § 5. Effects of Defraying Government Expenditure by Loans.
o § 6. Demand for Commodities is not Demand for Labor.
• Chapter V. On Circulating And Fixed Capital.
o § 1. Fixed and Circulating Capital.
o § 2. Increase of Fixed Capital, when, at the Expense of Circulating, might be Detrimental to the Laborers.
o § 3. —This seldom, if ever, occurs.
• Chapter VI. Of Causes Affecting The Efficiency Of Production.
o § 1. General Causes of Superior Productiveness.
o § 2. Combination and Division of Labor Increase Productiveness.
o § 3. Advantages of Division of Labor.
o § 4. Production on a Large and Production on a Small Scale.
• Chapter VII. Of The Law Of The Increase Of Labor.
o § 1. The Law of the Increase of Production Depends on those of Three Elements—Labor. Capital, and Land.
o § 2. The Law of Population.
o § 3. By what Checks the Increase of Population is Practically Limited.
• Chapter VIII. Of The Law Of The Increase Of Capital.
o § 1. Means for Saving in the Surplus above Necessaries.
o § 2. Motive for Saving in the Surplus above Necessaries.
o § 3. Examples of Deficiency in the Strength of this Desire.
o § 4. Examples of Excess of this Desire.
• Chapter IX. Of The Law Of The Increase Of Production From Land.
o § 1. The Law of Production from the Soil, a Law of Diminishing Return in Proportion to the Increased Application of Labor and Capital.
o § 2. Antagonist Principle to the Law of Diminishing Return; the Progress of Improvements in Production.
o § 3. —In Railways.
o § 4. —In Manufactures.
o § 5. Law Holds True of Mining.
• Chapter X. Consequences Of The Foregoing Laws.
o § 1. Remedies for Weakness of the Principle of Accumulation.
o § 2. Even where the Desire to Accumulate is Strong, Population must be Kept within the Limits of Population from Land.
o § 3. Necessity of Restraining Population not superseded by Free Trade in Food.
o § 4. —Nor by Emigration.
• Book II. Distribution.
• Chapter I. Of Property.
o § 1. Individual Property and its opponents.
o § 2. The case for Communism against private property presented.
o § 3. The Socialists who appeal to state-help.
o § 4. Of various minor schemes, Communistic and Socialistic.
o § 5. The Socialist objections to the present order of Society examined.
o § 6. Property in land different from property in Movables.
• Chapter II. Of Wages.
o § 1. Of Competition and Custom.
o § 2. The Wages-fund, and the Objections to it Considered.
o § 3. Examination of some popular Opinions respecting Wages.
o § 4. Certain rare Circumstances excepted, High Wages imply Restraints on Population.
o § 5. Due Restriction of Population the only Safeguard of a Laboring-Class.
• Chapter III. Of Remedies For Low Wages.
o § 1. A Legal or Customary Minimum of Wages, with a Guarantee of Employment.
o § 2. —Would Require as a Condition Legal Measures for Repression of Population.
o § 3. Allowances in Aid of Wages and the Standard of Living.
o § 4. Grounds for Expecting Improvement in Public Opinion on the Subject of Population.
o § 5. Twofold means of Elevating the Habits of the Laboring-People; by Education, and by Foreign and Home Colonization.
• Chapter IV. Of The Differences Of Wages In Different Employments.
o § 1. Differences of Wages Arising from Different Degrees of Attractiveness in Different Employments.
o § 2. Differences arising from Natural Monopolies.
o § 3. Effect on Wages of the Competition of Persons having other Means of Support.
o § 4. Wages of Women, why Lower than those of Men.
o § 5. Differences of Wages Arising from Laws, Combinations, or Customs.
• Chapter V. Of Profits.
o § 1. Profits include Interest and Risk; but, correctly speaking, do not include Wages of Superintendence.
o § 2. The Minimum of Profits; what produces Variations in the Amount of Profits.
o § 3. General Tendency of Profits to an Equality.
o § 4. The Cause of the Existence of any Profit; the Advances of Capitalists consist of Wages of Labor.
o § 5. The Rate of Profit depends on the Cost of Labor.
• Chapter VI. Of Rent.
o § 1. Rent the Effect of a Natural Monopoly.
o § 2. No Land can pay Rent except Land of such Quality or Situation as exists in less Quantity than the Demand.
o § 3. The Rent of Land is the Excess of its Return above the Return to the worst Land in Cultivation.
o § 4. —Or to the Capital employed in the least advantageous Circumstances.
o § 5. Opposing Views of the Law of Rent.
o § 6. Rent does not enter into the Cost of Production of Agricultural Produce.
• Book III. Exchange.
• Chapter I. Of Value.
o § 1. Definitions of Value in Use, Exchange Value, and Price.
o § 2. Conditions of Value: Utility, Difficulty of Attainment, and Transferableness.
o § 3. Commodities limited in Quantity by the law of Demand and Supply: General working of this Law.
o § 4. Miscellaneous Cases falling under this Law.
o § 5. Commodities which are Susceptible of Indefinite Multiplication without Increase of Cost. Law of their Value Cost of Production.
o § 6. The Value of these Commodities confirm, in the long run, to their Cost of Production through the operation of Demand and Supply.
• Chapter II. Ultimate Analysis Of Cost Of Production.
o § 1. Of Labor, the principal Element in Cost of Production.
o § 2. Wages affect Values, only if different in different employments; “non-competing groups.”
o § 3. Profits an element in Cost of Production.
o § 4. Cost of Production properly represented by sacrifice, or cost, to the Laborer as well as to the Capitalist; the relation of this conception to the Cost of Labor.
o § 5. When profits vary from Employment to Employment, or are spread over unequal lengths of Time, they affect Values accordingly.
o § 6. Occasional Elements in Cost of Production; taxes and ground-rent.
• Chapter III. Of Rent, In Its Relation To Value.
o § 1. Commodities which are susceptible of indefinite Multiplication, but not without increase of Cost. Law of their Value, Cost of Production in the most unfavorable existing circumstances.
o § 2. Such commodities, when Produced in circumstances more favorable, yield a Rent equal to the difference of Cost.
o § 3. Rent of Mines and Fisheries and ground-rent of Buildings, and cases of gain analogous to Rent.
o § 4. Résumé of the laws of value of each of the three classes of commodities.
• Chapter IV. Of Money.
o § 1. The three functions of Money—a Common Denominator of Value, a Medium of Exchange, a “Standard of Value”.
o § 2. Gold and Silver, why fitted for those purposes.
o § 3. Money a mere contrivance for facilitating exchanges, which does not affect the laws of value.
• Chapter V. Of The Value Of Money, As Dependent On Demand And Supply.
o § 1. Value of Money, an ambiguous expression.
o § 2. The Value of Money depends on its quantity.
o § 3. —Together with the Rapidity of Circulation.
o § 4. Explanations and Limitations of this Principle.
• Chapter VI. Of The Value Of Money, As Dependent On Cost Of Production.
o § 1. The value of Money, in a state of Freedom, conforms to the value of the Bullion contained in it.
o § 2. —Which is determined by the cost of production.
o § 3. This law, how related to the principle laid down in the preceding chapter.
• Chapter VII. Of A Double Standard And Subsidiary Coins.
o § 1. Objections to a Double Standard.
o § 2. The use of the two metals as money, and the management of Subsidiary Coins.
o § 3. The experience of the United States with a double standard from 1792 to 1883.
• Chapter VIII. Of Credit, As A Substitute For Money.
o § 1. Credit not a creation but a Transfer of the means of Production.
o § 2. In what manner it assists Production.
o § 3. Function of Credit in economizing the use of Money.
o § 4. Bills of Exchange.
o § 5. Promissory Notes.
o § 6. Deposits and Checks.
• Chapter IX. Influence Of Credit On Prices.
o § 1. What acts on prices is Credit, in whatever shape given.
o § 2. Credit a purchasing Power, similar to Money.
o § 3. Great extensions and contractions of Credit. Phenomena of a commercial crisis analyzed.
o § 4. Influence of the different forms of Credit on Prices.
o § 5. On what the use of Credit depends.
o § 6. What is essential to the idea of Money?
• Chapter X. Of An Inconvertible Paper Currency.
o § 1. What determines the value of an inconvertible paper money?
o § 2. If regulated by the price of Bullion, as inconvertible Currency might be safe, but not Expedient.
o § 3. Examination of the doctrine that an inconvertible Current is safe, if representing actual Property.
o § 4. Experiments with paper Money in the United States.
o § 5. Examination of the gain arising from the increase and issue of paper Currency.
o § 6. Résumé of the subject of money.
• Chapter XI. Of Excess Of Supply.
o § 1. The theory of a general Over-Supply of Commodities stated.
o § 2. The supply of commodities in general can not exceed the power of Purchase.
o § 3. There can never be a lack of Demand arising from lack of Desire to Consume.
o § 4. Origin and Explanation of the notion of general Over-Supply.
• Chapter XII. Of Some Peculiar Cases Of Value.
o § 1. Values of commodities which have a joint cost of production.
o § 2. Values of the different kinds of agricultural produce.
• Chapter XIII. Of International Trade.
o § 1. Cost of Production not a regulator of international values. Extension of the word “international.”
o § 2. Interchange of commodities between distance places determined by differences not in their absolute, but in the comparative, costs of production.
o § 3. The direct benefits of commerce consist in increased Efficiency of the productive powers of the World.
o § 4. —Not in a Vent for exports, nor in the gains of Merchants.
o § 5. Indirect benefits of Commerce, Economical and Moral; still greater than the Direct.
• Chapter XIV. Of International Values.
o § 1. The values of imported commodities depend on the Terms of international interchange.
o § 2. The values of foreign commodities depend, not upon Cost of Production, but upon Reciprocal Demand and Supply.
o § 3. —As illustrated by trade in cloth and linen between England and Germany.
o § 4. The conclusion states in the Equation of International Demand.
o § 5. The cost to a country of its imports depends not only on the ratio of exchange, but on the efficiency of its labor.
• Chapter XV. Of Money Considered As An Imported Commodity.
o § 1. Money imported on two modes; as a Commodity, and as a medium of Exchange.
o § 2. As a commodity, it obeys the same laws of Value as other imported Commodities.
• Chapter XVI. Of The Foreign Exchanges.
o § 1. Money passes from country to country as a Medium of Exchange, through the Exchanges.
o § 2. Distinction between Variations in the Exchanges which are self-adjusting and those which can only be rectified through Prices.
• Chapter XVII. Of The Distribution Of The Precious Metals Through The Commercial World.
o § 1. The substitution of money for barter makes no difference in exports and imports, nor in the Law of international Values.
o § 2. The preceding Theorem further illustrated.
o § 3. The precious metals, as money, are of the same Value, and distribute themselves according to the same Law, with the precious metals as a Commodity.
o § 4. International payments entering into the “financial account.”
• Chapter XVIII. Influence Of The Currency On The Exchanges And On Foreign Trade.
o § 1. Variations in the exchange, which originate in the Currency.
o § 2. Effect of a sudden increase of a metallic Currency, or of the sudden creation of Bank-Notes or other substitutes for Money.
o § 3. Effect of the increase of an inconvertible paper Currency. Real and nominal exchange.
• Chapter XIX. Of The Rate Of Interest.
o § 1. The Rate of Interest depends on the Demand and Supply of Loans.
o § 2. Circumstances which Determine the Permanent Demand and Supply of Loans.
o § 3. Circumstances which Determine the Fluctuations.
o § 4. The Rate of Interest not really Connected with the value of Money, but often confounded with it.
o § 5. The Rate of Interest determines the price of land and of Securities.
• Chapter XX. Of The Competition Of Different Countries In The Same Market.
o § 1. Causes which enable one Country to undersell another.
o § 2. High wages do not prevent one Country from underselling another.
o § 3. Low wages enable a Country to undersell another, when Peculiar to certain branches of Industry.
o § 4. —But not when common to All.
o § 5. Low profits as affecting the carrying Trade.
• Chapter XXI. Of Distribution, As Affected By Exchange.
o § 1. Exchange and money make no Difference in the law of Wages.
o § 2. In the law of Rent.
o § 3. —Nor in the law of Profits.
• Book IV. Influence Of The Progress Of Society On Production And Distribution.
• Chapter I. Influence Of The Progress Of Industry And Population On Values And Prices.
o § 1. Tendency of the progress of society toward increased Command over the powers of Nature; increased Security, and increased Capacity of Co-Operation.
o § 2. Tendency to a Decline of the Value and Cost of Production of all Commodities.
o § 3. —except the products of Agriculture and Mining, which have a tendency to Rise.
o § 4. —that tendency from time to time Counteracted by Improvements in Production.
o § 5. Effect of the Progress of Society in moderating fluctuations of Value.
• Chapter II. Influence Of The Progress Of Industry And Population On Rents, Profits, And Wages.
o § 1. Characteristic features of industrial Progress.
o § 2. First two cases, Population and Capital increasing, the arts of production stationary.
o § 3. The arts of production advancing, capital and population stationary.
o § 4. Theoretical results, if all three Elements progressive.
o § 5. Practical Results.
• Chapter III. Of The Tendency Of Profits To A Minimum.
o § 1. Different Theories as to the fall of Profits.
o § 2. What determines the minimum rate of Profit?
o § 3. In old and opulent countries, profits habitually near to the minimum.
o § 4. —prevented from reaching it by commercial revulsions.
o § 5. —by improvements in Production.
o § 6. —by the importation of cheap Necessaries and Implements.
o § 7. —by the emigration of Capital.
• Chapter IV. Consequences Of The Tendency Of Profits To A Minimum, And The Stationary State.
o § 1. Abstraction of Capital not necessarily a national loss.
o § 2. In opulent countries, the extension of machinery not detrimental but beneficial to Laborers.
o § 3. Stationary state of wealth and population dreaded by some writers, but not in itself undesirable.
• Chapter V. On The Possible Futurity Of The Laboring-Classes.
o § 1. The possibility of improvement while Laborers remain merely receivers of Wages.
o § 2.—through small holdings, by which the landlord's gain is shared.
o § 3. —through co-operation, by which the manager's wages are shared.
o § 4. Distributive Co-operation.
o § 5. Productive Co-Operation.
o § 6. Industrial Partnership.
o § 7. People's Banks.
• Book V. On The Influence Of Government.
• Chapter I. On The General Principles Of Taxation.
o § 1. Four fundamental rules of Taxation.
o § 2. Grounds of the principle of Equality of Taxation.
o § 3. Should the same percentage be levied on all amounts of Income?
o § 4. Should the same percentage be levied on Perpetual and on Terminable Incomes?
o § 5. The increase of the rent of land from natural causes a fit subject of peculiar Taxation.
o § 6. Taxes falling on Capital not necessarily objectionable.
• Chapter II. Of Direct Taxes.
o § 1. Direct taxes either on income or expenditure.
o § 2. Taxes on rent.
o § 3. —on profits.
o § 4. —on Wages.
o § 5. —on Income.
o § 6. A House-Tax.
• Chapter III. Of Taxes On Commodities, Or Indirect Taxes.
o § 1. A Tax on all commodities would fall on Profits.
o § 2. Taxes on particular commodities fall on the consumer.
o § 3. Peculiar effects of taxes on Necessaries.
o § 4. —how modified by the tendency of profits to a minimum.
o § 5. Effects of discriminating Duties.
o § 6. Effects produced on international Exchange by Duties on Exports and on Imports.
• Chapter IV. Comparison Between Direct And Indirect Taxation.
o § 1. Arguments for and against direct Taxation.
o § 2. What forms of indirect taxation are most eligible?
o § 3. Practical rules for indirect taxation.
o § 4. Taxation systems of the United States and other Countries.
o § 5. A Résumé of the general principles of taxation.
• Chapter V. Of A National Debt.
o § 1. Is it desirable to defray extraordinary public expenses by loans?
o § 2. Not desirable to redeem a national Debt by a general Contribution.
o § 3. In what cases desirable to maintain a surplus revenue for the redemption of Debt.
• Chapter VI. Of An Interference Of Government Grounded On Erroneous Theories.
o § 1. The doctrine of Protection to Native Industry.
o § 2. —had its origin in the Mercantile System.
o § 3. —supported by pleas of national subsistence and national defense.
o § 4. —on the ground of encouraging young industries; colonial policy.
o § 5. —on the ground of high wages.
o § 6. —on the ground of creating a diversity of industries.
o § 7. —on the ground that it lowers prices.
• Appendix I. Bibliographies.
• Appendix II. Examination Questions.
• Footnotes
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Re: Principles Of Political Economy, by John Stuart Mill

Postby admin » Tue May 19, 2020 9:57 am

Preface.

An experience of five years with Mr. Mill's treatise in the class-room not only convinced me of the great usefulness of what still remains one of the most lucid and systematic books yet published which cover the whole range of the study, but I have also been convinced of the need of such additions as should give the results of later thinking, without militating against the general tenor of Mr. Mill's system; of such illustrations as should fit it better for American students, by turning their attention to the application of principles in the facts around us; of a bibliography which should make it easier to get at the writers of other schools who offer opposing views on controverted questions; and of some attempts to lighten those parts of his work in which Mr. Mill frightened away the reader by an appearance of too great abstractness, and to render them, if possible, more easy of comprehension to the student who first approaches Political Economy through this author. Believing, also, that the omission of much that should properly be classed under the head of Sociology, or Social Philosophy, would narrow the field to Political Economy alone, and aid, perhaps, in [pg iv]clearer ideas, I was led to reduce the two volumes into one, with, of course, the additional hope that the smaller book would tempt some readers who might hesitate to attack his larger work. In consonance with the above plan, I have abridged Mr. Mill's treatise, yet have always retained his own words; although it should be said that they are not always his consecutive words. Everything in the larger type on the page is taken literally from Mr. Mill, and, whenever it has been necessary to use a word to complete the sense, it has been always inserted in square brackets. All additional matter introduced by me has been printed in a smaller but distinctive type. The reader can see at a glance which part of the page is Mr. Mill's and which my own.

It has seemed necessary to make the most additions to the original treatise under the subjects of the Wages Question; of Wages of Superintendence; of Socialism; of Cost of Production; of Bimetallism; of the Paper Money experiments in this country; of International Values; of the Future of the Laboring-Classes (in which the chapter was entirely rewritten); and of Protection. The treatment of Land Tenures has not been entirely omitted, but it does not appear as a separate subject, because it has at present less value as an elementary study for American students. The chapters on Land Tenures, the English currency discussion, and much of Book V, on the Influence of Government, have been simply omitted. In one case I have changed the order of the chapters, by inserting Chap. XV of Book III, treating of a standard of value, under the chapter treating of money and its functions. In other respects, the same order has been followed as in the original work.

Wherever it has seemed possible, American illustrations have been inserted instead of English or Continental ones.

To interest the reader in home problems, twenty-four charts have been scattered throughout the volume, which bear upon our own conditions, with the expectation, also, that the different methods of graphic representation here presented would lead students to apply them to other questions. They are mainly such as I have employed in my class-room. The use and preparation of such charts ought to be encouraged. The earlier pages of the volume have been given up to a “Sketch of the History of Political Economy,” which aims to give the story of how we have arrived at our present knowledge of economic laws. The student who has completed Mill will then have a very considerable bibliography of the various schools and writers from which to select further reading, and to select this reading so that it may not fall wholly within the range of one class of writers. But, for the time that Mill is being first studied, I have added a list of the most important books for consultation. I have also collected, in Appendix I, some brief bibliographies on the Tariff, on Bimetallism, and on American Shipping, which may be of use to those who may not have the means of inquiring for authorities, and in Appendix II a number of questions and problems for the teacher's use.

In some cases I have omitted Mr. Mill's statement entirely, and put in its stead a simpler form of the same exposition which I believed would be more easily grasped by a student. Of such cases, the argument to show that Demand for Commodities is not Demand for Labor, the Doctrine of International Values, and the Effect of the Progress of Society on wages, profits, and rent, are examples. Whether I have succeeded or not, must be left for the experience of the teacher to determine. Many small figures and diagrams have been used throughout the text, in order [pg vi]to suggest the concrete means of getting a clear grasp of a principle.

In conclusion, I wish to acknowledge my indebtedness to several friends for assistance in the preparation of this volume, among whom are Professor Charles F. Dunbar, Dr. F. W. Taussig, Dr. A. B. Hart, and Mr. Edward Atkinson.

J. Laurence Laughlin.
Harvard University, Cambridge, Massachusetts,
September, 1884.

Image
Illustration: Population Map of eastern United States, 1830. Chart I

Image
Illustration: Population Map of United States, 1880. Chart II
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Re: Principles Of Political Economy, by John Stuart Mill

Postby admin » Tue May 19, 2020 10:03 am

Introductory.

A Sketch Of The History Of Political Economy.


General Bibliography.—There is no satisfactory general history of political economy in English. Blanqui's “Histoire de l'économie politique en Europe” (Paris, 1837) is disproportioned and superficial, and he labors under the disadvantage of not understanding the English school of economists. He studies to give the history of economic facts, rather than of economic laws. The book has been translated into English (New York, 1880).

Villeneuve-Bargemont, in his “Histoire de l'économie politique” (Paris, 1841), aims to oppose a “Christian political economy” to the “English” political economy, and indulges in religious discussions.

Travers Twiss, “View of the Progress of Political Economy in Europe since the Sixteenth Century” (London, 1847), marked an advance by treating the subject in the last four centuries, and by separating the history of principles from the history of facts. It is brief, and only a sketch. Julius Kautz has published in German the best existing history, “Die geschichtliche Entwickelung der National-Oekonomie und ihrer Literatur” (Vienna, 1860). (See Cossa, “Guide to the Study of Political Economy,” page 80.) Cossa in his book has furnished a vast amount of information about writers, classified by epochs and countries, and a valuable discussion of the divisions of political economy by various writers, and its relation to other sciences. It is a very desirable little hand-book. McCulloch, in his “Introduction to the Wealth of Nations,” gives a brief sketch of the growth of economic doctrine. The editor begs to acknowledge his great indebtedness for information to his colleague, Professor Charles F. Dunbar, of Harvard University.


Systematic study for an understanding of the laws of political economy is to be found no farther back than the [pg 002]sixteenth century. The history of political economy is not the history of economic institutions, any more than the history of mathematics is the history of every object possessing length, breadth, and thickness. Economic history is the story of the gradual evolution in the thought of men of an understanding of the laws which to-day constitute the science we are studying. It is essentially modern.1

Aristotle2 and Xenophon had some comprehension of the theory of money, and Plato3 had defined its functions with some accuracy. The economic laws of the Romans were all summed up in the idea of enriching the metropolis at the expense of the dependencies. During the middle ages no systematic study was undertaken, and the nature of economic laws was not even suspected.

It is worth notice that the first glimmerings of political economy came to be seen through the discussions on money, and the extraordinary movements of gold and silver. About the time of Charles V, the young study was born, accompanied by the revival of learning, the Reformation, the discovery of America, and the great fall in the value of gold and silver. Modern society was just beginning, and had already brought manufactures into existence—woolens in England, silks in France, Genoa, and Florence; Venice had become the great commercial city of the world; the Hanseatic League was carrying goods from the Mediterranean to the Baltic; and the Jews of Lombardy had by that time brought into use the bill of exchange. While the supply of the precious metals had been tolerably constant hitherto, the steady increase of business brought about a fall of prices. From the middle of the fourteenth to the end of the fifteenth century [pg 003]the purchasing power of money increased in the ratio of four to ten. Then into this situation came the great influx of gold and silver from the New World. Prices rose unequally; the trading and manufacturing classes were flourishing, while others were depressed. In the sixteenth century the price of wheat tripled, but wages only doubled; the laboring-classes of England deteriorated, while others were enriched, producing profound social changes and the well-known flood of pauperism, together with the rise of the mercantile classes. Then new channels of trade were opened to the East and West. Of course, men saw but dimly the operation of these economic causes; although the books now began to hint at the right understanding of the movements and the true laws of money.

Even before this time, however, Nicole Orêsme, Bishop of Lisieux (died 1382), had written intelligently on money;4 but, about 1526, the astronomer Copernicus gave a very good exposition of some of the functions of money. But he, as well as Latimer,5 while noticing the economic changes, gave no correct explanation. The Seigneur de Malestroit, a councilor of the King of France, however, by his errors drew out Jean Bodin6 to say that the rise of prices was due to the abundance of money brought from America. But he was in advance of his time, as well as William Stafford,7 the author of the first English treatise on money, which showed a perfect insight into the subject. Stafford distinctly grasped [pg 004]the idea that the high prices brought no loss to merchants, great gain to those who held long leases, and loss to those who did not buy and sell; that, in reality, commodities were exchanged when money was passed from hand to hand.

Such was the situation8 which prefaced the first general system destined to be based on supposed economic considerations, wrongly understood, to be sure, but vigorously carried out. I refer to the well-known mercantile system which over-spread Europe.9 Spain, as the first receiver of American gold and silver, attributed to it abnormal power, and by heavy duties and prohibitions tried to keep the precious metals to herself. This led to a general belief in the tenets of the mercantile system, and its adoption by all Europe. 1. It was maintained that, where gold and silver abounded, there would be found no lack of the necessaries of life; 2. Therefore governments should do all in their power to secure an abundance of money. Noting that commerce and political power seemed to be in the hands of the states having the greatest quantity of money, men wished mainly to create such a relation of exports and imports of goods as would bring about an importation of money. The natural sequence of this was, the policy of creating a favorable “balance of trade” by increasing exports and diminishing imports, thus implying that the gain in international trade was not a mutual one. The error consisted in supposing that a nation could sell without buying, and in overlooking the instrumental character of money. The errors even went so far as to create prohibitory legislation, in the hope of shutting out imported goods and keeping the precious metals at home. The system [pg 005]spread over Europe, so that France (1544) and England (1552) forbade the export of specie. But, with the more peaceful conditions at the end of the sixteenth century, the expansion of commerce, the value of money became steadier, and prices advanced more slowly.

Italian writers were among the first to discuss the laws of money intelligently,10 but a number of acute Englishmen enriched the literature of the subject,11 and it may be said that any modern study of political economy received its first definite impulse from England and France.

The prohibition of the export of coin was embarrassing to the East India Company and to merchants; and Mun tried to show that freedom of exportation would increase the amount of gold and silver in a country, since the profits in foreign trade would bring back more than went out. It probably was not clear to them, however, that the export of bullion to the East was advantageous, because the commodities brought back in return were more valuable in England than the precious metals. The purpose of the mercantilists was to increase the amount of gold and silver in the country. Mun, with some penetration, had even pointed out that too much money was an evil; but in 1663 the English Parliament removed the restriction on the exportation of coin. The balance-of-trade heresy, that exports should always exceed [pg 006]imports (as if merchants would send out goods which, when paid for in commodities, should be returned in a form of less value than those sent out!), was the outcome of the mercantile system, and it has continued in the minds of many men to this day. The policy which aimed at securing a favorable balance of trade, and the plan of protecting home industries, had the same origin. If all consumable goods were produced at home, and none imported, that would increase exports, and bring more gold and silver into the country. As all the countries of Europe had adopted the mercantile theory after 1664, retaliatory and prohibitory tariffs were set up against each other by England, France, Holland, and Germany. Then, because it was seen that large sums were paid for carrying goods, in order that no coin should be required to pay foreigners in any branch of industry, navigation laws were enacted, which required goods to be imported only in ships belonging to the importing nation. These remnants of the mercantile system continue to this day in the shipping laws of this and other countries.12

A natural consequence of the navigation acts, and of the mercantile system, was the so-called colonial policy, by which the colonies were excluded from all trade except with the mother-country. A plantation like New England, which produced commodities in competition with England, was looked upon with disfavor for her enterprise; and all this because of the fallacy, at the foundation of the mercantile [pg 007]system, that the gain in international trade is not mutual, but that what one country gains another must lose.13

An exposition of mercantilism would not be complete without a statement of the form it assumed in France under the guidance of Colbert,14 the great minister of Louis XIV, from 1661 to 1683. In order to create a favorable balance of trade, he devoted himself to fostering home productions, by attempts to abolish vexatious tolls and customs within the country, and by an extraordinary system of supervision in manufacturing establishments (which has been the stimulus to paternal government from which France has never since been able to free herself). Processes were borrowed from England, Germany, and Sweden, and new establishments for making tapestries and silk goods sprang up; even the sizes of fabrics were regulated by Colbert, and looms unsuitable for these sizes destroyed. In 1671 wool-dyers were given a code of detailed instructions as to the processes and materials that might be used. Long after, French industry felt the difficulty of struggling with stereotyped processes. His system, however, naturally resulted in a series of tariff measures (in 1664 and 1667). Moderate duties on the exportation of raw materials were first laid on, followed by heavy customs imposed on the importation of foreign goods. The shipment of coin was forbidden; but Colbert's criterion of prosperity was the favorable balance of trade. French agriculture was overlooked. The tariff of 1667 was based on the theory that foreigners must of necessity buy French wines, lace, and wheat; that the French could sell, but not buy; but the act of 1667 cut off the demand for French goods, and Portuguese [pg 008]wines came into the market. England and Holland retaliated and shut off the foreign markets from France. The wine and wheat growers of the latter country were ruined, and the rural population came to the verge of starvation. Colbert's last years were full of misfortune and disappointment; and a new illustration was given of the fallacy that the gain from international trade was not mutual.

From this time, economic principles began to be better apprehended. It is to be noted that the first just observations arose from discussions upon money, and thence upon international trade. So far England has furnished the most acute writers: now France became the scene of a new movement. Marshal Vauban,15 the great soldier, and Boisguillebert16 both began to emphasize the truth that wealth really consists, not in money alone, but in an abundance of commodities; that countries which have plenty of gold and silver are not wealthier than others, and that money is only a medium of exchange. It was not, however, until 1750 that evidences of any real advance began to appear; for Law's famous scheme (1716-1720) only served as a drag upon the growth of economic truth. But in the middle of the eighteenth century an intellectual revival set in: the “Encyclopædia” was published, Montesquieu wrote his “l'Ésprit des Lois,” Rousseau was beginning to write, and Voltaire was at the height of his power. In this movement political economy had an important share, and there resulted the first school of Economists, termed the Physiocrats.

The founder and leader of this new body of economic thinkers was François Quesnay,17 a physician and favorite at [pg 009]the court of Louis XV. Passing by his ethical basis of a natural order of society, and natural rights of man, his main doctrine, in brief, was that the cultivation of the soil was the only source of wealth; that labor in other industries was sterile; and that freedom of trade was a necessary condition of healthy distribution. While known as the “Economists,” they were also called the “Physiocrats,”18 or the “Agricultural School.” Quesnay and his followers distinguished between the creation of wealth (which could only come from the soil) and the union of these materials, once created, by labor in other occupations. In the latter case the laborer did not, in their theory, produce wealth. A natural consequence of this view appeared in a rule of taxation, by which all the burdens of state expenditure were laid upon the landed proprietors alone, since they alone received a surplus of wealth (the famous net produit) above their sustenance and expenses of production. This position, of course, did not recognize the old mercantile theory that foreign commerce enriched a nation solely by increasing the quantity of money. To a physiocrat the wealth of a community was increased not by money, but by an abundant produce from its own soil. In fact, Quesnay argued that the right of property included the right to dispose of it freely at home or abroad, unrestricted by the state. This doctrine was formulated in the familiar expression, “Laissez faire, laissez passer.”19 Condorcet and Condillac favored the new ideas. The “Economists” became the fashion in France; and even included in their number Joseph II of Austria, the Kings of Spain, Poland, Sweden, Naples, Catharine [pg 010]of Russia, and the Margrave of Baden.20 Agriculture, therefore, received a great stimulus.

Quesnay had many vigorous supporters, of whom the most conspicuous was the Marquis de Mirabeau21 (father of him of the Revolution), and the culmination of their popularity was reached about 1764. A feeling that the true increase of wealth was not in a mere increase of money, but in the products of the soil, led them naturally into a reaction against mercantilism, but also made them dogmatic and overbearing in their one-sided system, which did not recognize that labor in all industries created wealth. As the mercantile system found a great minister in Colbert to carry those opinions into effect on a national scale, so the Physiocrats found in Turgot22 a minister, under Louis XVI, who gave them a national field in which to try the doctrines of the new school. Benevolently devoted to bettering the condition of the people while Intendant of Limoges (1751), he was made comptroller-general of the finances by Louis XVI in 1774. Turgot had the ability to separate political economy from politics, law, and ethics. His system of freeing industry from governmental interference resulted in abolishing many abuses, securing a freer movement of grain, and in lightening the taxation. But the rigidity of national prejudices [pg 011]was too strong to allow him success. He had little tact, and raised many difficulties in his way. The proposal to abolish the corvées (compulsory repair of roads by the peasants), and substitute a tax on land, brought his king into a costly struggle (1776), and attempts to undermine Turgot's power were successful. With his downfall ended the influence of the Economists. The last of them was Dupont de Nemours,23 who saw a temporary popularity of the Physiocrats in the early years of the French Revolution, when the Constituent Assembly threw the burden of taxes on land. But the fire blazed up fitfully for a moment, only to die away entirely.

All this, however, was the slow preparation for a newer and greater movement in political economy than had yet been known, and which laid the foundation of the modern study as it exists to-day. The previous discussions on money and the prominence given to agriculture and economic considerations by the Economists made possible the great achievements of Adam Smith and the English school. A reaction in England against the mercantile system produced a complete revolution in political economy. Vigorous protests against mercantilism had appeared long before,24 and the true functions of money had come to be rightly understood.25 More [pg 012]than that, many of the most important doctrines had been either discussed, or been given to the public in print. It is at least certain that hints of much that made so astonishing an effect in Adam Smith's “Wealth of Nations” (1776) had been given to the world before the latter was written. To what sources, among the minor writers, he was most indebted, it is hard to say. Two, at least, deserve considerable attention, David Hume and Richard Cantillon. The former published his “Economic Essays” in 1752, which contained what even now would be considered enlightened views on money, interest, balance of trade, commerce, and taxation; and a personal friendship existed between Hume and Adam Smith dating back as far as 1748, when the latter was lecturing in Edinburgh on rhetoric. The extent of Cantillon's acquirements and Adam Smith's possible indebtedness to him have been but lately recognized. In a recent study26 on Cantillon, the late Professor Jevons has pointed out that the former anticipated many of the doctrines later ascribed to Adam Smith, Malthus, and Ricardo. Certain it is that the author of the “Wealth of Nations” took the truth wherever he found it, received substantial suggestions from various sources, but, after having devoted himself in a peculiarly successful way to collecting facts, he wrought out of all he had gathered the first rounded system of political economy the world had yet known; which pointed out that labor was at the basis of production, not merely in agriculture, as the French school would have it, but in all industries; and which battered down all the defenses of the mediæval mercantile system. In a marked degree Adam Smith27 combined a logical precision and a [pg 013]power of generalizing results out of confused data with a practical and intuitive regard for facts which are absolutely necessary for great achievements in the science of political economy. At Glasgow (1751-1764) Adam Smith gave lectures on natural theology, ethical philosophy, jurisprudence, and political economy, believing that these subjects were complementary to each other.

A connected and comprehensive grasp of principles was the great achievement of Adam Smith;28 for, although the “Wealth of Nations” was naturally not without faults, it has been the basis of all subsequent discussion and advance in political economy. In Books I and II his own system is elucidated, while Book IV contains his discussion of the Agricultural School and the attacks on the mercantile system. Seeing distinctly that labor was the basis of all production (not merely in agriculture), he shows (Books I and II) that the wealth of a country depends on the skill with which its labor is applied, and upon the proportion of productive to unproductive laborers. The gains from division of labor are explained, and money appears as a necessary instrument after society has reached such a division. He is then led to discuss prices (market price) and value; and, since from the price a distribution takes place among the factors of production, he is brought to wages, profit, and rent. The functions [pg 014]of capital are explained in general; the separation of fixed from circulating capital is made; and he discusses the influence of capital on the distribution of productive and unproductive labor; the accumulation of capital, money, paper money, and interest. He, therefore, gets a connected set of ideas on production, distribution, and exchange. On questions of production not much advance has been made since his day; and his rules of taxation are now classic. He attacked vigorously the balance-of-trade theory, and the unnatural diversion of industry in England by prohibitions, bounties, and the arbitrary colonial system. In brief, he held that a plan for the regulation of industry by the Government was indefensible, and that to direct private persons how to employ their capital was either hurtful or useless. He taught that a country will be more prosperous if its neighbors are prosperous, and that nations have no interest in injuring each other. It was, however, but human that his work should have been somewhat defective.29 A new period in the history of political [pg 015]economy, however, begins with Adam Smith. As Roscher says, he stands in the center of economic history.

New writers now appear who add gradually stone after stone to the good foundation already laid, and raise the edifice to fairer proportions. The first considerable addition comes from a contribution by a country clergyman, Thomas Robert Malthus,30 in his “Essay on the Principles of Population” (1798). Against the view of Pitt that “the man who had a large family was a benefactor to his country,” Malthus argued conclusively that “a perfectly happy and virtuous community, by physical law, is constrained to increase very rapidly.... By nature human food increases in a slow arithmetical ratio; man himself increases in a quick geometrical ratio, unless want and vice stop him.” In his second edition (1803), besides the positive check of vice and want, he gave more importance to the negative check of “self-restraint, moral and prudential.” The whole theory was crudely stated at first; and it raised the cry that such a doctrine was inconsistent with the belief in a benevolent Creator. In its essence, the law of population is simply that a tendency and ability exist in mankind to increase its numbers faster than subsistence, and that this result actually will happen unless checks retard it, or new means of getting subsistence [pg 016]arise. If an undue increase of population led to vice and misery, in Malthus's theory, he certainly is not to be charged with unchristian feelings if he urged a self-restraint by which that evil result should be avoided. Malthus's doctrines excited great discussion: Godwin says that by 1820 thirty or forty answers to the essay had been written; and they have continued to appear. The chief contributions have been by A. H. Everett, “New Ideas on Population” (1823), who believed that an increase of numbers increased productive power; by M. T. Sadler, “Law of Population” (1830), who taught that human fertility varied inversely with numbers, falling off with density of population; by Sir Archibald Alison, “Principles of Population” (1840), who reasoned inductively that the material improvement of the human race is a proof that man can produce more than he consumes, or that in the progress of society preventive checks necessarily arise; by W. R. Greg, “Enigmas of Life” (1873); and by Herbert Spencer, “Westminster Review” (April, 1852), and “Principles of Biology,” (part vi, ch. xii and xiii), who worked out a physiological check, in that with a mental development out of lower stages there comes an increased demand upon the nervous energy which causes a diminution of fertility. Since Darwin's studies it has been very generally admitted that it is the innate tendency of all organic life to increase until numbers press upon the limit of food-production; not that population has always done so in every country.31 Malthus's teachings resulted in the modern poor-house system, beginning with 1834 in England, and they corrected some of the abuses of indiscriminate charity.

While Adam Smith had formulated very correctly the laws of production, in his way Malthus was adding to the [pg 017]means by which a better knowledge of the principles of distribution was to be obtained; and the next advance, owing to the sharp discussions of the time on the corn laws, was, by a natural progress, to the law of diminishing returns and rent. An independent discovery of the law of rent is to be assigned to no less than four persons,32 but for the full perception of its truth and its connection with other principles of political economy the credit has been rightly given to David Ricardo,33 next to Adam Smith without question the greatest economist of the English school. Curiously enough, although Adam Smith was immersed in abstract speculations, his “homely sagacity” led him to the most practical results; but while Ricardo was an experienced and successful man of business, he it was, above all others, who established the abstract political economy, in the sense of a body of scientific laws to which concrete phenomena, in spite of temporary inconsistencies, must in the end conform. His work, therefore, supplemented that of Adam Smith; and there are very few doctrines fully worked out to-day of which hints have not been found in Ricardo's wonderfully compact statements. [pg 018]With no graces of exposition, his writings seem dry, but are notwithstanding mines of valuable suggestions.

In the field of distribution and exchange Ricardo made great additions. Malthus and West had shown that rent was not an element in cost of production; but both Malthus and Ricardo seemed to have been familiar with the doctrine of rent long before the former published his book. Ricardo, however, saw into its connection with other parts of a system of distribution.34 The Malthusian doctrine of a pressure of population on subsistence naturally forced a recognition of the law of diminishing returns from land;35 then as soon as different qualities of land were simultaneously cultivated, the best necessarily gave larger returns than the poorest; and the idea that the payment of rent was made for a superior instrument, and in proportion to its superiority over the poorest instrument which society found necessary to use, resulted in the law of rent. Ricardo, moreover, carried out this principle as it affected wages, profits, values, and the fall of profits; but did not give sufficient importance to the operation of forces in the form of improvements acting in opposition to the tendency toward lessened returns. The theory of rent still holds its place, although it has met with no little opposition.36 A doctrine, quite as important in its effects on free [pg 019]exchange, was clearly established by Ricardo, under the name of the doctrine of “Comparative Cost,” which is the reason for the existence of any and all international trade.

The work of Adam Smith was soon known to other countries, apart from translations. A most lucid and attractive exposition was given to the French by J. B. Say, “Traité d'économie politique” (1803), followed, after lecturing in Paris from 1815-1830, by a more complete treatise,37 “Cours complète d'économie politique” (1828). While not contributing much that was new, Say did a great service by popularizing previous results in a happy and lively style, combined with good arrangement, and many illustrations. The theory that general demand and supply are identical is his most important contribution to the study. Although he translated Ricardo's book, he did not grasp the fact that rent did not enter into price. Say's work was later supplemented by an Italian, Pellegrino Rossi,38 who, in his “Cours d'économie politique” (1843-1851), naturalized the doctrines of Malthus and Ricardo on French soil. His work is of solid value, and he and Say have given rise to an active school of [pg 020]political economy in France. In Switzerland, Sismondi expounded Adam Smith's results in his “De la richesse commerciale” (1803), but was soon led into a new position, explained in his “Nouveaux principes d'économie politique” (1819). This has made him the earliest and most distinguished of the humanitarian economists. Seeing the sufferings caused by readjustments of industries after the peace, and the warehouses filled with unsold goods, he thought the excess of production over the power of consumption was permanent, and attacked division of labor, labor-saving machinery, and competition. Discoveries which would supersede labor he feared would continue, and the abolition of patents, together with the limitation of population,39 was urged. These arguments furnished excellent weapons to the socialistic agitators. Heinrich Storch40 aimed to spread the views of Adam Smith41 in Russia, by his “Cours d'économie politique” (1815). Without further developing the theory of political economy, he produced a book of exceptional merit by pointing out the application of the principles to Russia, particularly in regard to the effect of a progress of wealth on agriculture and manufactures; to the natural steps by which a new country changes from agriculture to a manufacturing régime; and to finance and currency, with an account of Russian depreciated paper since Catharine II.

For the next advance, we must again look to England. Passing by McCulloch42 and Senior, a gifted writer, the legitimate successor of Ricardo is John Stuart Mill.43 His father, [pg 022]James Mill,44 introduced him into a circle of able men, of which Bentham was the ablest, although his father undoubtedly exercised the chief influence over his training. While yet but twenty-three, in his first book, “Essays on some Unsettled Questions of Political Economy” (1829-1830), he gained a high position as an economist. In one form or another, all his additions to the study are to be found here in a matured condition. The views on productive and unproductive consumption, profits, economic methods, and especially his very clever investigation on international values, were there presented. His “Logic” (1843) contains (Book VI) a careful statement of the relation of political economy to other sciences, and of the proper economic method to be adopted in investigations. Through his “Principles of Political Economy” (1848) he has exercised a remarkable influence upon men in all lands; not so much because of great originality, since, in truth, he only put Ricardo's principles in better and more attractive form, but chiefly by a method of systematic treatment more lucid and practical than had been hitherto reached, by improving vastly beyond the dry treatises of his predecessors (including Ricardo, who was concise and dull), by infusing a human element into his aims, and by illustrations and practical applications. Even yet, however, some parts of his book show the tendency to too great a fondness for abstract statement, induced probably by a dislike to slighting his reasons (due to his early training), and by the limits of his book, which obliged him to omit many possible illustrations. With a deep sympathy for the laboring-classes, he was [pg 023]tempted into the field of sociology in this book, although he saw distinctly that political economy was but one of the sciences, a knowledge of which was necessary to a legislator in reaching a decision upon social questions. Mill shows an advance beyond Ricardo in this treatise, by giving the study a more practical direction. Although it is usual to credit Mill with originating the laws of international values, yet they are but a development of Ricardo's doctrine of international trade, and Mill's discussions of the progress of society toward the stationary state were also hinted at, although obscurely, by Ricardo. In the volumes of Mr. Mill the subject is developed as symmetrically as a proof in geometry. While he held strongly to free trade,45 he gave little space to the subject in his book. All in all, his book yet remains the best systematic treatise in the English language, although much has been done since his day.46

He who has improved upon previous conceptions, and been the only one to make any very important advance in the science since Mill's day, is J. E. Cairnes,47 in his “Leading Principles of [pg 024]Political Economy newly expounded” (1874). Scarcely any previous writer has equaled him in logical clearness, originality, insight into economic phenomena, and lucidity of style. He subjected value, supply and demand, cost of production, and international trade, to a rigid investigation, which has given us actual additions to our knowledge of the study. The wages-fund theory was re-examined, and was stated in a new form, although Mr. Mill had given it up. Cairnes undoubtedly has given it its best statement. His argument on free trade (Part III, chapter iv) is the ablest and strongest to be found in modern writers. This volume is, however, not a systematic treatise on all the principles of political economy; but no student can properly pass by these great additions for the right understanding of the science. His “Logical Method of Political Economy” (1875) is a clear and able statement of the process to be adopted in an economic investigation, and is a book of exceptional merit and usefulness, especially in view of the rising differences in the minds of economists as to method.

A group of English writers of ability in this period have written in such a way as to win for them mention in connection with Cairnes and Mill. Professor W. Stanley Jevons48 [pg 025]put himself in opposition to the methods of the men just mentioned, and applied the mathematical process to political economy, but without reaching new results. His most serviceable work has been in the study of money, which appears in an excellent form, “The Money and Mechanism of Exchange” (1875), and in an investigation which showed a fall of the value of gold since the discoveries of 1849. In this latter he has furnished a model for any subsequent investigator. Like Professor Jevons, T. E. Cliffe Leslie49 opposed the older English school (the so-called “orthodox”), but in the different way of urging with great ability the use of the historical method, of which more will be said in speaking of later German writers.50 He also distinguished himself by a study of land tenures, in his “Land Systems and Industrial [pg 026]Economy of Ireland, England, and Continental Countries” (1870), which was a brilliant exposition of the advantages of small holdings.

By far the ablest of the group, both by reason of his natural gifts and his training as a banker and financial editor, was Walter Bagehot.51 In his “Economic Studies” (1880) he has discussed with a remarkable economic insight the postulates of political economy, and the position of Adam Smith, Ricardo, and Malthus; in his “Lombard Street” (fourth edition, 1873), the money market is pictured with a vivid distinctness which implies the possession of rare qualities for financial writing; indeed, it is in this practical way also, as editor of the London “Economist,”52 that he made his great reputation.

Of living English economists, Professor Henry Fawcett,53 in his “Manual of Political Economy” (1865; sixth edition, 1883), is a close follower of Mill, giving special care to co-operation, silver, nationalization of land, and trades-unions. He is an exponent of the strict wages-fund theory, and a vigorous free-trader. Professor J. E. Thorold Rogers, of Oxford, also holds aloof from the methods of the old school. [pg 027]His greatest contribution has been a “History of Agriculture and Prices in England,” from 1255 to 1793, in four volumes54 (1866-1882).

Of all the writers55 since Cairnes, it may be said that, while adding to the data with which political economy has to do, and putting principles to the test of facts, they have made no actual addition to the existing body of principles; although questions of distribution and taxation are certainly not yet fully settled, as is seen by the wide differences of opinion expressed on subjects falling within these heads by writers of to-day.

It now remains to complete this sketch of the growth of political economy by a brief account of the writers on the Continent and in the United States, beginning with France. About the time of the founding of the London “Economist” (1844) and “The Statistical Journal” (1839) in England, there was established in Paris the “Journal des Économistes” (1842), which contains many valuable papers. On the whole, the most popular writer since J. B. Say has been Bastiat,56 who aspired to be the French Cobden. He especially urged [pg 028]a new57 view of value, which he defined as the relation established by an exchange of services; that nature's products are gratuitous, so that man can not exact anything except for a given service. Chiefly as a foe of protection, which he regarded as qualified socialism, he has won a reputation for popular and clever writing; and he was led to believe in a general harmony of interests between industrial classes; but in general he can not be said to have much influenced the course of French thought. On value, rent, and population, he is undoubtedly unsound. A writer of far greater depth than Bastiat, with uncommon industry and wide knowledge, was Michel Chevalier,58 easily the first among modern French economists. He has led in the discussion upon the fall of gold, protection, banking, and particularly upon money; an ardent free-trader, he had influence enough to induce France to enter into the commercial treaty of 1860 with England. One of the ablest writers on special topics is [pg 029]Levasseur,59 who has given us a history of the working-classes before and since the Revolution, and the best existing monograph on John Law. The most industrious and reliable of the recent writers is the well-known statistician, Maurice Block,60 while less profound economists were J. A. Blanqui61 and Wolowski.62 The latter devoted himself enthusiastically [pg 030]to banks of issue, and bimetallism. A small group gave themselves up chiefly to studies on agriculture and land-tenures—H. Passy,63 Laveleye, and Lavergne.64 The latter is by far the most important, as shown by his “L'économie rurale de la France depuis 1789” (1857), which gives a means of comparing recent French agriculture with that before the Revolution, as described in Arthur Young's “Travels in France” (1789). The best systematic treatise in French is the “Précis de la science économique” (1862), by Antoine-Élise Cherbuliez,65 a Genevan. The French were the first to produce an alphabetical encyclopædia of economics, [pg 031]by Coquelin and Guillaumin, entitled the “Dictionnaire de l'économie politique” (1851-1853, third edition, 1864). Courcelle-Seneuil,66 by his “Traité théorique et pratique d'économie politique” (second edition, 1867); and Baudrillart, by a good compendium. Joseph Garnier, Dunoyer,67 Paul Leroy-Beaulieu,68 Reybaud,69 De Parieu,70 Léon Say,71 Boiteau, and others, have done excellent work in France, and Walras72 in Switzerland.

As Cobden had an influence on Bastiat, so both had an influence in Germany in creating what has been styled by opponents the “Manchester school,” led by Prince-Smith (died 1874). They have worked to secure complete liberty of [pg 032]commerce and industry, and include in their numbers many men of ability and learning. Yearly congresses have been organized for the purpose of disseminating liberal ideas, and an excellent review, the “Vierteljahrschrift für Volkswirthschaft, Politik, und Kulturgeschichte,”73 has been established. They have devoted themselves successfully to reforms of labor-laws, interest, workingmen's dwellings, the money system, and banking, and strive for the abolition of protective duties. Schulze-Delitzsch has acquired a deserved reputation for the creation of people's banks, and other forms of co-operation. The translator of Mill into German, Adolph Soetbeer,74 is the most eminent living authority on the production of the precious metals, and a vigorous monometallist. The school is represented in the “Handwörterbuch der Volkswirthschaftslehre” (1865) of Reutzsch. The other writers of this group are Von Böhmert,75 Faucher, Braun, Wolff, Michaelis, Emminghaus,76 Wirth,77 Hertzka, and Von Holtzendorf. The best known of the German protectionists is Friedrich List, the author of “Das nationale System der politischen Oekonomie” (1841), whose doctrines are very similar to those of H. C. Carey in this country.78 An able writer on [pg 033]administrative functions and finance79 is Lorenz Stein, of Vienna.

But German economists are of interest, inasmuch as they have established a new school who urge the use of the historical method in political economy, and it is about the question of method that much of the interest of to-day centers. In 1814 Savigny introduced this method into jurisprudence, and about 1850 it was applied to political economy. The new school claim that the English “orthodox” writers begin by an a priori process, and by deductions reach conclusions which are possibly true of imaginary cases, but are not true of man as he really acts. They therefore assert that economic laws can only be truly discovered by induction, or a study of phenomena first, as the means of reaching a generalization. To them Bagehot80 answers that scientific bookkeeping, or collections of facts, in themselves give no results ending in scientific laws; for instance, since the facts of banking change and vary every day, no one can by induction alone reach any laws of banking; or, for example, the study of a panic from the concrete phenomena would be like trying to explain the bursting of a boiler without a theory of steam. More lately,81 since it seems that the new school claim that induction does not preclude deduction, and as the old school never intended to disconnect themselves from “comparing conclusions with external facts,” there is not such a cause of difference as has previously appeared. Doubtless the insistence upon the merits of induction will be fruitful of good to “orthodox” writers, in the more general resort to the collection of statistics and means of verification. It is suggestive also that the leaders of the new school in Germany [pg 034]and England have reached no different results by their new method, and in the main agree with the laws evolved by the old English school. The economist does not pretend that his assumptions are descriptions of economic conditions existing at a given time; he simply considers them as forces (often acting many on one point or occasion) to be inquired into separately, inasmuch as concrete phenomena are the resultants of several forces, not to be known until we know the separate operation of each of the conjoined forces.

The most prominent of the new school is Wilhelm Roscher,82 of Leipsic, who wrote a systematic treatise, “System der Volkswirthschaft” (1854, sixteenth edition, 1883), in the first division of which the notes contain a marvelous collection of facts and authorities. He agrees in results with Adam Smith, Ricardo, Malthus, and Mill, but does not seem to have known much of Cairnes. This book, however, is only a first of four treatises eventually intended to include the political economy of (2) agriculture, (3) industry and commerce, [pg 035]and (4) the state and commune. The ablest contemporary of Roscher, who was probably the first to urge the historical method, is Karl Knies,83 in “Die politische Oekonomie vom Standpunkte der geschichtlichen Methode” (1853, second edition, 1881-1883). The third of the group who founded the historical school is Bruno Hildebrand,84 of Jena, author of “Die Nationalökonomie der Gegenwart und Zukunft” (1848).

The German mind has always been familiar with the interference of the state, and a class of writers has arisen, not only advocating the inductive method, but strongly imbued with a belief in a close connection of the state with industry; and, inasmuch as the essence of modern socialism is a resort to state-help, this body of men, with Wagner at their head, has received the name of “Socialists85 of the Chair,” and now wield a wide influence in Germany. Of these writers,86 Wagner, Engel, Schmoller, Von Scheel, Brentano, Held, Schönberg, and Schäffle are the most prominent.

The historical school has received the adhesion of Émile [pg 036]de Laveleye,87 in Belgium, and other economists in England and the United States. While Cliffe Leslie has been the most vigorous opponent of the methods of the old school, there have been many others of less distinction. Indeed, the period, the close of which is marked by J. R. McCulloch's book, was one in which the old school had seemingly come to an end of its progress, from too close an adhesion to deductions from assumed premises. Mill's great merit was that he began the movement to better adapt political economy to society as it actually existed; and the historical school will probably give a most desirable impetus to the same results, even though its exaggerated claims as to the true method88 can not possibly be admitted.

Italian writers have not received hitherto the attention they deserve. After 1830, besides Rossi, who went to France, there was Romagnosi, who dealt more with the relations of economics to other studies; Cattanes, who turned to rural questions and free trade (combating the German, List); Scialoja, at the University of Turin; and Francesco Ferrara, also at Turin from 1849 to 1858. The latter was a follower of Bastiat and Carey, as regards value and rent, and at the same time was a radical believer in laissez-faire. Since the union of Italy there has been a new interest in economic study, as with us after our war. The most eminent living Italian economist is said to be Angelo Messedaglia, holding a chair at Padua since 1858. He has excelled in statistical and financial subjects, and is now engaged on a treatise on money, “Moneta,” of which one part has been issued (1882). Marco Minghetti and Fedele Lampertico stand above others, the former for a study of the connection of political economy [pg 038]with morals, and for his public career as a statesman; the latter for his studies on paper money and other subjects. Carlo Ferrais presented a good monograph on “Money and the Forced Currency” (1879); and Boccardo issued a library of selected works of the best economists, and a large Dictionary of Political Economy, “Dizionario universale di Economia Politica e di Commercio” (2 vols., second edition, 1875). Luigi Luzzati is a vigorous advocate of co-operation; and Elia Lattes has made a serious study of the early Venetian banks.

Political economy has gained little from American writers. Of our statesmen none have made any additions to the science, and only Hamilton and Gallatin can properly be called economists. Hamilton, in his famous “Report on Manufactures” (1791), shared in some of the erroneous conceptions of his day; but this paper, together with his reports on a national bank and the public credit, are evidences of a real economic power. Gallatin's “Memorial in Favor of Tariff Reform” (1832) is as able as Hamilton's report on manufactures, and a strong argument against protection. Both men made a reputation as practical financiers.

“With few exceptions, the works produced in the United States have been prepared as text-books89 by authors engaged in college instruction, and therefore chiefly interested in bringing principles previously worked out by others within the easy comprehension of undergraduate students.”90 Of these [pg 039]exceptions, Alexander H. Everett's “New Ideas on Population”91 (1822), forms a valuable part in the discussion which followed the appearance of Malthus's “Essay.” The writer, however, who has drawn most attention, at home and abroad, for a vigorous attack on the doctrines of Ricardo is Henry Charles Carey.92 Beginning with “The Rate of Wages” (1835), he developed a new theory of value (see “Principles of Political Economy,” 1837-1840), “which he defined as a measure of the resistance to be overcome in obtaining things required for use, or the measure of the power of nature over man. In simpler terms, value is measured by the cost of reproduction. The value of every article thus declines as the arts advance, while the general command of commodities constantly increases. This causes a constant fall in the value of accumulated capital as compared with the results of present labor, from which is inferred a tendency toward harmony rather than divergence of interests between capitalist and laborer.” This theory of value93 he applied to land, and even to man, in his desire to give it universality. He next claimed to have discovered a law of increasing production from land in his “Past, Present, and Future” (1848), which was diametrically opposed to Ricardo's law of diminishing returns. His proof was an historical one, that in fact the poorer, not the richer lands, were first taken into cultivation. This, however, did not explain the fact that different grades of [pg 040]land are simultaneously under cultivation, on which Ricardo's doctrine of rent is based. The constantly increasing production of land naturally led Carey to believe in the indefinite increase of population. He, however, was logically brought to accept the supposed law of an ultimate limit to numbers suggested by Herbert Spencer, based on a diminution of human fertility. He tried to identify physical and social laws, and fused his political economy in a system of “Social Science” (1853), and his “Unity of Law” (1872). From about 1845 he became a protectionist, and his writings were vigorously controversial. In his doctrines on money he is distinctly a mercantilist;94 but, by his earnest attacks on all that has been gained in the science up to his day, he has done a great service in stimulating inquiry and causing a better statement of results. While undoubtedly the best known of American writers, yet, because of a prolix style and an illogical habit of mind, he has had no extended influence on his countrymen.95

The effect of the civil war is now beginning to show itself in an unmistakable drift toward the investigation of economic questions, and there is a distinctly energetic tone which may bring new contributions from American writers. General Francis A. Walker,96 in his study on “The Wages Question” (1876), has combated the wages-fund theory, and [pg 041]proposed in its place a doctrine that wages are paid out of the product, and not out of accumulated capital. Professor W. G. Sumner97 is a vigorous writer in the school of Mill and Cairnes, and has done good work in the cause of sound money doctrines. Both General Walker and Professor Sumner hold to the method of economic investigation as expounded by Mr. Cairnes; although several younger economists show the influence of the German school. Professor A. L. Perry,98 of Williams College, adopted Bastiat's theory of value. He also accepts the wages-fund theory, rejects the law of Malthus, and, although believing in the law of diminishing returns from land, regards rent as the reward for a service rendered. Another writer, Henry George,99 has gained an abnormal prominence by a plausible book, “Progress and Poverty” (1880), which rejects the doctrine of Malthus, and argues that the increase of production of any kind augments the [pg 042]demand for land, and so raises its value. His conclusions lead him to advocate the nationalization of land. Although in opposition to almost all that political economy has yet produced, his writing has drawn to him very unusual notice. The increasing interest in social questions, and the general lack of economic training, which prevents a right estimate of his reasoning by people in general, sufficiently account for the wide attention he has received.

Of late, however, new activity has been shown in the establishment of better facilities for the study of political economy in the principal seats of learning—Harvard, Yale, Cornell, Columbia, Michigan, and Pennsylvania: and a “Cyclopædia of Political Science” (1881-1884, three volumes) has been published by J. J. Lalor, after the example of the French dictionaries.
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Re: Principles Of Political Economy, by John Stuart Mill

Postby admin » Tue May 19, 2020 10:05 am

Books For Consultation (From English, French, And German Authors).

General Treatises forming a Parallel Course of Reading with Mill.


Professor Fawcett's “Manual of Political Economy” (London, sixth edition, 1883) is a brief statement of Mill's book, with additional matter on the precious metals, slavery, trades-unions, co-operation, local taxation, etc.

Antoine-Élise Cherbuliez's “Précis de la science économique” (Paris, 1862, 2 vols.) follows the same arrangement as Mill, and is considered the best treatise on economic science in the French language. He is methodical, profound, and clear, and separates pure from applied political economy.

Other excellent books in French are: Courcelle-Seneuil's “Traité théorique et pratique d'économie politique” (1858), (Paris, second edition, 1867, 2 vols.), and a compendium by Henri Baudrillart, “Manuel d'économie politique” (third edition, 1872).

Roscher's “Principles of Political Economy” is a good example of the German historical method; its notes are crowded with facts; but the English translation (New York, 1878) is badly done. There is an excellent translation of it into French by Wolowski.

A desirable elementary work, “The Economics of Industry” (London, 1879), was prepared by Mr. and Mrs. Marshall.

Professor Jevons wrote a “Primer of Political Economy” (1878), which is a simple, bird's-eye view of the subject in a very narrow compass.

Important General Works.

Adam Smith's “Wealth of Nations” (1776). The edition of McCulloch is perhaps more serviceable than that of J. E. T. Rogers.

Ricardo's “Principles of Political Economy and Taxation” (1817).

J. S. Mill's “Principles of Political Economy” (2 vols., 1848—sixth edition, 1865).

Schönberg's “Handbuch der politischen Oekonomie” (1882). This is a large co-operative treatise by twenty-one writers from the historical school.

Cairnes's “Leading Principles of Political Economy” (1874); “Logical Method” (1875), lectures first delivered in Dublin in 1857.

Carey's “Social Science” (1877). This has been abridged in one volume by Kate McKean.

F. A. Walker's “Political Economy” (1883). This author differs from other economists, particularly on wages and questions of distribution.

H. George's “Progress and Poverty” (1879). In connection with this, read F. A. Walker's “Land and Rent” (1884).

Treatises on Special Subjects.

W. T. Thornton's “On Labor” (1869).

McLeod's “Theory and Practice of Banking” (second edition, 1875-1876).

M. Block's “Traité théorique et pratique de statistique” (1878).

Goschen's “Theory of Foreign Exchanges” (eighth edition, 1875).

J. Caird's “Landed Interest” (fourth edition, 1880), treating of English land and the food-supply.

W. G. Sumner's “History of American Currency” (1874).

John Jay Knox's “United States Notes” (1884).

Jevons's “Money and the Mechanism of Exchange” (1875).

Tooke and Newmarch's “History of Prices” (1837-1856), in six volumes.

Leroy-Beaulieu's “Traité de la science des finances” (1883). This is an extended work, in two volumes, on taxation and finance; “Essai sur la répartition des richesses” (second edition, 1883).

F. A. Walker's “The Wages Question” (1876); “Money” (1878).

L. Reybaud's “Études sur les réformateurs contemporains, ou socialistes modernes” (seventh edition, 1864).

Dictionaries.

McCulloch's “Commercial Dictionary” (new and enlarged edition, 1882).

Lalor's “Cyclopædia of Political Science” (1881-84) is devoted to articles on political science, political economy, and American history.

Coquelin and Guillaumin's “Dictionnaire de l'économie politique” (1851-1853, third edition, 1864), in two large volumes.

Reports and Statistics.

The “Compendiums of the Census” for 1840, 1850, 1860, and 1870, are desirable. The volumes of the tenth census (1880) are of great value for all questions; as is also F. A. Walker's “Statistical Atlas” (1874).

The United States Bureau of Statistics issues quarterly statements; and annually a report on “Commerce and Navigation,” and another on the “Internal Commerce of the United States.”

The “Statistical Abstract” is an annual publication, by the same department, compact and useful. It dates only from 1878.

The Director of the Mint issues an annual report dealing with the precious metals and the circulation. Its tables are important.

The Comptroller of the Currency (especially during the administration of J. J. Knox) has given important annual reports upon the banking systems of the United States.

The reports of the Secretary of the Treasury deal with the general finances of the United States. These, with the two last mentioned, are bound together in the volume of “Finance Reports,” but often shorn of their tables.

There are valuable special reports to Congress of commissioners on the tariff, shipping, and other subjects, published by the Government.

The report on the “International Monetary Conference of 1878” contains a vast quantity of material on monetary questions.

The British parliamentary documents contain several annual “Statistical Abstracts” of the greatest value, of which the one relating to other European states is peculiarly convenient and useful. These can always be purchased at given prices.

A. R. Spofford's “American Almanac” is an annual of great usefulness.
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Re: Principles Of Political Economy, by John Stuart Mill

Postby admin » Tue May 19, 2020 10:06 am

Preliminary Remarks.

Writers on Political Economy profess to teach, or to investigate, the nature of Wealth, and the laws of its production and distribution; including, directly or remotely, the operation of all the causes by which the condition of mankind, or of any society of human beings, in respect to this universal object of human desire, is made prosperous or the reverse.

It will be noticed that political economy does not include ethics, legislation, or the science of government. The results of political economy are offered to the statesman, who reaches a conclusion after weighing them in connection with moral and political considerations. Political Economy is distinct from Sociology; although it is common to include in the former everything which concerns social life. Some writers distinguish between the pure, or abstract science, and the applied art, and we can speak of a science of political economy only in the sense of a body of abstract laws or formulas. This, however, does not make political economy less practical than physics, for, after a principle is ascertained, its operation is to be observed in the same way that we study the force of gravitation in a falling stone, even when retarded by opposing forces. An economic force, or tendency, can be likewise distinctly observed, although other influences, working at the same time, prevent the expected effect from following its cause. It is, in short, the aim of political economy to investigate the laws which govern the phenomena of material wealth. (Cf. Cossa, “Guide,” chap. iii.)
While the [Mercantile] system prevailed, it was assumed, either expressly or tacitly, in the whole policy of nations, [pg 048]that wealth consisted solely of money; or of the precious metals, which, when not already in the state of money, are capable of being directly converted into it. According to the doctrines then prevalent, whatever tended to heap up money or bullion in a country added to its wealth.

More correctly the Mercantilists (in the sixteenth and seventeenth centuries) held that where money was most plentiful, there would be found the greatest abundance of the necessaries of life.100
Whatever sent the precious metals out of a country impoverished it. If a country possessed no gold or silver mines, the only industry by which it could be enriched was foreign trade, being the only one which could bring in money. Any branch of trade which was supposed to send out more money than it brought in, however ample and valuable might be the returns in another shape, was looked upon as a losing trade. Exportation of goods was favored and encouraged (even by means extremely onerous to the real resources of the country), because, the exported goods being stipulated to be paid for in money, it was hoped that the returns would actually be made in gold and silver. Importation of anything, other than the precious metals, was regarded as a loss to the nation of the whole price of the things imported; unless they were brought in to be re-exported at a profit, or unless, being the materials or instruments of some industry practiced in the country itself, they gave the power of producing exportable articles at smaller cost, and thereby effecting a larger exportation. The commerce of the world was looked upon as a struggle among nations, which could draw to itself the largest share of the gold and silver in existence; and in this competition no nation could gain anything, except by making others lose as much, or, at the least, preventing them from gaining it.

The Mercantile Theory could not fail to be seen in its true character when men began, even in an imperfect manner, [pg 049]to explore into the foundations of things. Money, as money, satisfies no want; its worth to any one consists in its being a convenient shape in which to receive his incomings of all sorts, which incomings he afterwards, at the times which suit him best, converts into the forms in which they can be useful to him. The difference between a country with money, and a country altogether without it, would be only one of convenience; a saving of time and trouble, like grinding by water instead of by hand, or (to use Adam Smith's illustration) like the benefit derived from roads; and to mistake money for wealth is the same sort of error as to mistake the highway, which may be the easiest way of getting to your house or lands, for the house and lands themselves.

Money, being the instrument of an important public and private purpose, is rightly regarded as wealth; but everything else which serves any human purpose, and which nature does not afford gratuitously, is wealth also. To be wealthy is to have a large stock of useful articles, or the means of purchasing them. Everything forms, therefore, a part of wealth, which has a power of purchasing; for which anything useful or agreeable would be given in exchange. Things for which nothing could be obtained in exchange, however useful or necessary they may be, are not wealth in the sense in which the term is used in Political Economy. Air, for example, though the most absolute of necessaries, bears no price in the market, because it can be obtained gratuitously; to accumulate a stock of it would yield no profit or advantage to any one; and the laws of its production and distribution are the subject of a very different study from Political Economy. It is possible to imagine circumstances in which air would be a part of wealth. If it became customary to sojourn long in places where the air does not naturally penetrate, as in diving-bells sunk in the sea, a supply of air artificially furnished would, like water conveyed into houses, bear a price: and, if from any revolution in nature the atmosphere became too scanty for the consumption, [pg 050]or could be monopolized, air might acquire a very high marketable value. In such a case, the possession of it, beyond his own wants, would be, to its owner, wealth; and the general wealth of mankind might at first sight appear to be increased, by what would be so great a calamity to them. The error would lie in not considering that, however rich the possessor of air might become at the expense of the rest of the community, all persons else would be poorer by all that they were compelled to pay for what they had before obtained without payment.

Wealth, then, may be defined, all useful or agreeable things which possess exchangeable value; or, in other words, all useful or agreeable things except those which can be obtained, in the quantity desired, without labor or sacrifice.

This is the usual definition of wealth. Henry George (see “Progress and Poverty,” pp. 34-37) regards wealth as consisting “of natural products that have been secured, moved, combined, separated, or in other ways modified by human exertion, so as to fit them for the gratification of human desires.... Nothing which Nature supplies to man without his labor is wealth.... All things which have an exchange value are, therefore, not wealth. Only such things can be wealth the production of which increases and the destruction of which decreases the aggregate of wealth.... Increase in land values does not represent increase in the common wealth, for what land-owners gain by higher prices the tenants or purchasers who must pay them will lose.” Jevons (“Primer,” p. 13) defines wealth very properly as what is transferable, limited in supply, and useful. F. A. Walker defines wealth as comprising “all articles of value and nothing else” (“Political Economy,” p. 5). Levasseur's definition (“Précis,” p. 15) is, “all material objects possessing utility” (i.e., the power to satisfy a want). (Cf. various definitions in Roscher's “Political Economy,” section 9, note 3.) Perry (“Political Economy,” p. 99) rejects the term wealth as a clog to progress in the science, and adopts property in its stead, defining it as that “which can be bought or sold.” Cherbuliez (“Précis,” p. 70) defines wealth as the material product of nature appropriated by labor for the wants of man. Carey (“Social Science,” i, 186) asserts that wealth consists in the power to command Nature's services, including in wealth such intangible things as mental qualities.
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Re: Principles Of Political Economy, by John Stuart Mill

Postby admin » Tue May 19, 2020 10:09 am

Book I. Production.

Chapter I. Of The Requisites Of Production.

§ 1. The Requisites of Production are Two: Labor, and Appropriate Natural Objects.


There is a third requisite of production, capital (see page 58). Since the limitation to only two requisites applies solely to a primitive condition of existence, so soon as the element of time enters into production, then a store of capital becomes necessary; that is, so soon as production requires such a term that during the operation the laborer can not at the same time provide himself with subsistence, then capital is a requisite of production. This takes place also under any general division of labor in a community. When one man is making a pin-head, he must be supplied with food by some person until the pins are finished and exchanged.


Labor is either bodily or mental; or, to express the distinction more comprehensively, either muscular or nervous; and it is necessary to include in the idea, not solely the exertion itself, but all feelings of a disagreeable kind, all bodily inconvenience or mental annoyance, connected with the employment of one's thoughts, or muscles, or both, in a particular occupation.

The word “sacrifice” conveys a just idea of what the laborer undergoes, and it corresponds to the abstinence of the capitalist.


Of the other requisite—appropriate natural objects—it is to be remarked that some objects exist or grow up spontaneously, of a kind suited to the supply of human wants. There are caves and hollow trees capable of affording shelter; fruits, roots, wild honey, and other natural products, on which human life can be supported; but even here a considerable quantity of labor is generally required, not for the purpose of creating, but of finding and appropriating them.

Of natural powers, some are unlimited, others limited in quantity. By an unlimited quantity is of course not meant literally, but practically unlimited: a quantity beyond the use which can in any, or at least in present circumstances, be made of it. Land is, in some newly settled countries, practically unlimited in quantity: there is more than can be used by the existing population of the country, or by any accession likely to be made to it for generations to come. But, even there, land favorably situated with regard to markets, or means of carriage, is generally limited in quantity: there is not so much of it as persons would gladly occupy and cultivate, or otherwise turn to use. In all old countries, land capable of cultivation, land at least of any tolerable fertility, must be ranked among agents limited in quantity. Coal, metallic ores, and other useful substances found in the earth, are still more limited than land.

For the present I shall only remark that, so long as the quantity of a natural agent is practically unlimited, it can not, unless susceptible of artificial monopoly, bear any value in the market, since no one will give anything for what can be obtained gratis. But as soon as a limitation becomes practically operative—as soon as there is not so much of the thing to be had as would be appropriated and used if it could be obtained for asking—the ownership or use of the natural agent acquires an exchangeable value.

Rich lands in our Western Territories a few years ago could be had practically for the asking; but now, since railways and an increase of population have brought them nearer to the markets, they have acquired a distinct exchange value. The value [pg 055]of a commodity (it may be anticipated) is the quantity of other things for which it can be exchanged.


When more water-power is wanted in a particular district than there are falls of water to supply it, persons will give an equivalent for the use of a fall of water. When there is more land wanted for cultivation than a place possesses, or than it possesses of a certain quality and certain advantages of situation, land of that quality and situation may be sold for a price, or let for an annual rent.

§ 2. The Second Requisite of Production, Labor.

It is now our purpose to describe the second requisite of production, labor, and point out that it can be either direct or indirect. This division and subdivision can be seen from the classification given below. Under the head of indirect labor are to be arranged all the many employments subsidiary to the production of any one article, and which, as they furnish but a small part of labor for the one article (e.g., bread), are subsidiary to the production of a vast number of other articles; and hence we see the interdependence of one employment on another, which comes out so conspicuously at the time of a commercial depression.

“We think it little to sit down to a table covered with articles from all quarters of the globe and from the remotest isles of the sea—with tea from China, coffee from Brazil, spices from the East, and sugar from the West Indies; knives from Sheffield, made with iron from Sweden and ivory from Africa; with silver from Mexico and cotton from South Carolina; all being lighted with oil brought from New Zealand or the Arctic Circle. Still less do we think of the great number of persons whose united agency is required to bring any one of these [pg 056]finished products to our homes—of the merchants, insurers, sailors, ship-builders, cordage and sail makers, astronomical-instrument makers, men of science, and others, before a pound of tea can appear in our market.”101


The labor102 which terminates in the production of an article fitted for some human use is either employed directly about the thing, or in previous operations destined to facilitate, perhaps essential to the possibility of, the subsequent ones. In making bread, for example, the labor employed about the thing itself is that of the baker; but the labor of the miller, though employed directly in the production not of bread but of flour, is equally part of the aggregate sum of labor by which the bread is produced; as is also the labor of the sower, and of the reaper. Some may think that all these persons ought to be considered as employing their labor directly about the thing; the corn, the flour, and the bread being one substance in three different states. Without disputing about this question of mere language, there is still the plowman, who prepared the ground for the seed, and whose labor never came in contact with the substance in any of its states; and the plow-maker, whose share in the result was still more remote. We must add yet another kind of labor; that of transporting the produce from the place of its production to the place of its destined use: the labor of carrying the corn to market, and from market to the miller's, the flour from the miller's to the baker's, and the bread from the baker's to the place of its final consumption.

Besides the two classes of indirect laborers here mentioned, those engaged in producing materials and those in transportation, there are several others who are paid fractions out of the bread. Subsidiary to the direct labor of the bread-maker is the labor of all those who make the instruments employed in the process (as, e.g., the oven). Materials are completely changed in character by one use, as when the coal is burned, or the flour baked into bread; while an instrument, like an oven, is [pg 057]capable of remaining intact throughout many operations. The producer of materials and the transporter are paid by the bread-maker in the price of his coal and flour when left at his door, so that the price of the loaf is influenced by these payments. Those persons, moreover, who, like the police and officers of our government, act to protect property and life, are also to be classed as laborers indirectly aiding in the production of the given article, bread (and by his taxes the bread-maker helps pay the wages of these officials). Shading off into a more distant, although essential, connection is another class—that of those laborers who train human beings in the branches of knowledge necessary to the attainment of proper skill in managing the processes and instruments of an industry. The acquisition of the rudiments of education, and, in many cases, the most profound knowledge of chemistry, physics and recondite studies, are essential to production; and teachers are indirect laborers in producing almost every article in the market. In this country, especially, are inventors a class of indirect laborers essential to all ultimate production as it now goes on. The improvements in the instruments of production are the results of an inventive ability which has made American machinery known all over the world. They, too, as well as the teacher, are paid (a small fraction, of course) out of the ultimate result, by an indirect path, and materially change the ease or difficulty, cheapness or dearness, of production in nearly every branch of industry. In the particular illustration given they have improved the ovens, ranges, and stoves, so that the same or better articles are produced at a less cost than formerly. All these indirect laborers receive, in the way of remuneration, a fraction, some more, some less (the farther they are removed from the direct process), of the value of the final result.


§ 3. Of Capital as a Requisite of Production.

But another set of laborers are to be placed in distinct contrast with these, so far as the grounds on which they receive their remuneration is concerned. These are the men engaged previously in providing the subsistence, and articles by which the former classes of labor can carry on their operations.


The previous employment of labor is an indispensable condition to every productive operation, on any other than the very smallest scale. Except the labor of the hunter and fisher, there is scarcely any kind of labor to which the returns are immediate. Productive operations require to be continued a certain time before their fruits are obtained. Unless the laborer, before commencing his work, possesses a [pg 058]store of food, or can obtain access to the stores of some one else, in sufficient quantity to maintain him until the production is completed, he can undertake no labor but such as can be carried on at odd intervals, concurrently with the pursuit of his subsistence.

The possession of capital is thus a third requisite of production, together with land and labor, as noted above. Henry George (“Progress and Poverty,” chap. iv) holds an opposite opinion: “The subsistence of the laborers who built the Pyramids was drawn, not from a previously hoarded stock” (does he not forget the story of Joseph's store of corn?), “but from the constantly recurring crops of the Nile Valley.”


He can not obtain food itself in any abundance; for every mode of so obtaining it requires that there be already food in store. Agriculture only brings forth food after the lapse of months; and, though the labors of the agriculturist are not necessarily continuous during the whole period, they must occupy a considerable part of it. Not only is agriculture impossible without food produced in advance, but there must be a very great quantity in advance to enable any considerable community to support itself wholly by agriculture. A country like England or the United States is only able to carry on the agriculture of the present year because that of past years has provided, in those countries or somewhere else, sufficient food to support their agricultural population until the next harvest. They are only enabled to produce so many other things besides food, because the food which was in store at the close of the last harvest suffices to maintain not only the agricultural laborers, but a large industrious population besides.

The claim to remuneration founded on the possession of food, available for the maintenance of laborers, is of another kind; remuneration for abstinence, not for labor. If a person has a store of food, he has it in his power to consume it himself in idleness, or in feeding others to attend on him, or to fight for him, or to sing or dance for him. If, instead of these things, he gives it to productive laborers to support [pg 059]them during their work, he can, and naturally will, claim a remuneration from the produce. He will not be content with simple repayment; if he receives merely that, he is only in the same situation as at first, and has derived no advantage from delaying to apply his savings to his own benefit or pleasure. He will look for some equivalent for this forbearance:103 he will expect his advance of food to come back to him with an increase, called, in the language of business, a profit; and the hope of this profit will generally have been a part of the inducement which made him accumulate a stock, by economizing in his own consumption; or, at any rate, which made him forego the application of it, when accumulated, to his personal ease or satisfaction.
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Re: Principles Of Political Economy, by John Stuart Mill

Postby admin » Tue May 19, 2020 10:10 am

Chapter II. Of Unproductive Labor.

§ 1. Definition of Productive and Unproductive Labor.


Labor is indispensable to production, but has not always production for its effect. There is much labor, and of a high order of usefulness, of which production is not the object. Labor has accordingly been distinguished into Productive and Unproductive. Productive labor means labor productive of wealth. We are recalled, therefore, to the question touched upon in our [Preliminary Remarks], what Wealth is.

By Unproductive Labor, on the contrary, will be understood labor which does not terminate in the creation of material wealth. And all labor, according to our present definition, must be classed as unproductive, which terminates in a permanent benefit, however important, provided that an increase of material products forms no part of that benefit. The labor of saving a friend's life is not productive, unless the friend is a productive laborer, and produces more than he consumes.

The principle on which the distinction is made is perfectly clear, but in many cases persons may be misled chiefly in regard to matters of fact. A clergyman may at first sight be classed as an unproductive laborer; but, until we know the facts, we can not apply the principle of our definition. Unless we know that no clergyman, by inculcating rules of morality and self-control, ever caused an idler or wrong-doer to become a steady laborer, we can not say that a clergyman is a laborer unproductive of material wealth. Likewise the army, or the officers of our government at Washington, may or may not have aided in producing material wealth according as they do or do not, in fact, accomplish the protective purposes for which [pg 061]they exist. So with teachers. There is, however, no disparagement implied in the word unproductive; it is merely an economic question, and has to do only with forces affecting the production of wealth.


Unproductive may be as useful as productive labor; it may be more useful, even in point of permanent advantage; or its use may consist only in pleasurable sensation, which when gone leaves no trace; or it may not afford even this, but may be absolute waste. In any case, society or mankind grow no richer by it, but poorer. All material products consumed by any one while he produces nothing are so much subtracted, for the time, from the material products which society would otherwise have possessed.

To be wasted, however, is a liability not confined to unproductive labor. Productive labor may equally be waste, if more of it is expended than really conduces to production. If defect of skill in laborers, or of judgment in those who direct them, causes a misapplication of productive industry, labor is wasted. Productive labor may render a nation poorer, if the wealth it produces, that is, the increase it makes in the stock of useful or agreeable things, be of a kind not immediately wanted: as when a commodity is unsalable, because produced in a quantity beyond the present demand; or when speculators build docks and warehouses before there is any trade.

§ 2. Productive and Unproductive Consumption.

The distinction of Productive and Unproductive is applicable to Consumption as well as to Labor. All the members of the community are not laborers, but all are consumers, and consume either unproductively or productively. Whoever contributes nothing directly or indirectly to production is an unproductive consumer. The only productive consumers are productive laborers; the labor of direction being of course included, as well as that of execution. But the consumption even of productive laborers is not all of it Productive Consumption. There is unproductive consumption by productive consumers. What they consume in keeping up or improving their health, strength, and capacities [pg 062]of work, or in rearing other productive laborers to succeed them, is Productive Consumption. But consumption on pleasures or luxuries, whether by the idle or by the industrious, since production is neither its object nor is in any way advanced by it, must be reckoned Unproductive: with a reservation, perhaps, of a certain quantum of enjoyment which may be classed among necessaries, since anything short of it would not be consistent with the greatest efficiency of labor. That alone is productive consumption which goes to maintain and increase the productive powers of the community; either those residing in its soil, in its materials, in the number and efficiency of its instruments of production, or in its people.

I grant that no labor really tends to the enrichment of society, which is employed in producing things for the use of unproductive consumers. The tailor who makes a coat for a man who produces nothing is a productive laborer; but in a few weeks or months the coat is worn out, while the wearer has not produced anything to replace it, and the community is then no richer by the labor of the tailor than if the same sum had been paid for a stall at the opera. Nevertheless, society has been richer by the labor while the coat lasted. These things also [such as lace and pine-apples] are wealth until they have been consumed.

§ 3. Distinction Between Labor for the Supply of Productive Consumption and Labor for the Supply of Unproductive Consumption.

We see, however, by this, that there is a distinction more important to the wealth of a community than even that between productive and unproductive labor; the distinction, namely, between labor for the supply of productive, and for the supply of unproductive, consumption; between labor employed in keeping up or in adding to the productive resources of the country, and that which is employed otherwise. Of the produce of the country, a part only is destined to be consumed productively; the remainder supplies the unproductive consumption of producers, and the entire consumption of the unproductive class. Suppose that the proportion of the annual produce applied to the first purpose amounts to half; then one half the productive laborers of the country [pg 063]are all that are employed in the operations on which the permanent wealth of the country depends. The other half are occupied from year to year and from generation to generation in producing things which are consumed and disappear without return; and whatever this half consume is as completely lost, as to any permanent effect on the national resources, as if it were consumed unproductively. Suppose that this second half of the laboring population ceased to work, and that the government maintained them in idleness for a whole year: the first half would suffice to produce, as they had done before, their own necessaries and the necessaries of the second half, and to keep the stock of materials and implements undiminished: the unproductive classes, indeed, would be either starved or obliged to produce their own subsistence, and the whole community would be reduced during a year to bare necessaries; but the sources of production would be unimpaired, and the next year there would not necessarily be a smaller produce than if no such interval of inactivity had occurred; while if the case had been reversed, if the first half of the laborers had suspended their accustomed occupations, and the second half had continued theirs, the country at the end of the twelvemonth would have been entirely impoverished. It would be a great error to regret the large proportion of the annual produce, which in an opulent country goes to supply unproductive consumption. That so great a surplus should be available for such purposes, and that it should be applied to them, can only be a subject of congratulation.

This principle may be seen by the following classification:

(A) Idlers; or unproductive laborers—e.g., actors.
(B) Productive laborers—e.g., farmers.
(C) Producing wealth for productive consumption, one half the annual produce.
(D) Producing wealth for unproductive consumption (A), one half the annual produce.

Group D are productive laborers, and their own necessaries are productively consumed, but they are supplied by C, who keep themselves and D in existence. So long as C work, both C and D can go on producing. If D stopped working, they could be still subsisted as before by C; but A would be forced to produce for themselves. But, if C stopped working, D and C would be left without the necessaries of life, and would be obliged to cease their usual work. In this way it may be seen how much more important to the increase of material wealth C are than D, who labor “for the supply of unproductive consumption.” Of course, group D are desirable on other than economic grounds, because their labor represents what can be enjoyed beyond the necessities of life.
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Re: Principles Of Political Economy, by John Stuart Mill

Postby admin » Tue May 19, 2020 10:12 am

Chapter III. Of Capital.

§ 1. Capital is Wealth Appropriated to Reproductive Employment.


It has been seen in the preceding chapters that besides the primary and universal requisites of production, labor and natural agents, there is another requisite without which no productive operations beyond the rude and scanty beginnings of primitive industry are possible—namely, a stock, previously accumulated, of the products of former labor. This accumulated stock of the produce of labor is termed Capital. What capital does for production is, to afford the shelter, protection, tools, and materials which the work requires, and to feed and otherwise maintain the laborers during the process. These are the services which present labor requires from past, and from the produce of past, labor. Whatever things are destined for this use—destined to supply productive labor with these various prerequisites—are Capital.

Professor Fawcett, “Manual” (chap. ii), says: “Since the laborer must be fed by previously accumulated food, ... some of the results of past labor are required to be set aside to sustain the laborer while producing. The third requisite of production, therefore, is a fund reserved from consumption, and devoted to sustain those engaged in future production.... Capital is not confined to the food which feeds the laborers, but includes machinery, buildings, and, in fact, every product due to man's labor which can be applied to assist his industry” (chap. iv). General Walker (“Political Economy,” pages 68-70) defines capital as that portion of wealth (excluding unimproved land and natural agents) which is employed in the production of new forms of wealth. Henry George (“Progress and Poverty,” page 41) returns to Adam Smith's definition: [pg 066]“That part of a man's stock which he expects to yield him a revenue is called his capital.” Cherbuliez (“Précis,” page 70) points out the increasing interdependence of industrial operations as society increases in wealth, and that there is not a single industry which does not demand the use of products obtained by previous labor. “These auxiliary products accumulated with a view to the production to which they are subservient” form what is called capital. Carey (“Social Science,” iii, page 48) regards as capital all things which in any way form the machinery by which society obtains wealth. Roscher's definition is, “Every product laid by for purposes of further production.” (“Political Economy,” section 42.) By some, labor is regarded as capital.104


A manufacturer, for example, has one part of his capital in the form of buildings, fitted and destined for carrying on this branch of manufacture. Another part he has in the form of machinery. A third consists, if he be a spinner, of raw cotton, flax, or wool; if a weaver, of flaxen, woolen, silk, or cotton thread; and the like, according to the nature of the manufacture. Food and clothing for his operatives it is not the custom of the present age that he should directly provide; and few capitalists, except the producers of food or clothing, have any portion worth mentioning of their capital in that shape. Instead of this, each capitalist has money, which he pays to his work-people, and so enables them to supply themselves. What, then, is his capital? Precisely that part of his possessions, whatever it be, which he designs to employ in carrying on fresh production. It is of no consequence that a part, or even the whole of it, is in a form in which it can not directly supply the wants of laborers.

Care should be taken to distinguish between wealth, capital, and money. Capital may be succinctly defined as saved wealth devoted to reproduction, and the relations of the three terms mentioned may be illustrated by the following figure: The area of the circle, A, represents the wealth of a country; the area of the inscribed circle, B, the quantity out of the whole wealth which is saved and devoted to reproduction and called capital. But money is only one part of capital, as shown by the area of circle C. Wherefore, it can be plainly [pg 067]seen that not all capital, B, is money; that not all wealth, A, is capital, although all capital is necessarily wealth as included within it. It is not always understood that money is merely a convenient article by which other forms of wealth are exchanged against each other, and that a man may have capital without ever having any actual money in his possession. In times of commercial depression, that which is capital to-day may not to-morrow satisfy any desires (i.e., not be in demand), and so for the time it may, so to speak, drop entirely out of our circles above. For the moment, not having an exchange value, it can not be wealth, and so can the less be capital.


Image
Illustration. Outer circle A, enclosing inner circle B, with small circle C overlapping edge of circle B.

Suppose, for instance, that the capitalist is a hardware manufacturer, and that his stock in trade, over and above his machinery, consists at present wholly in iron goods. Iron goods can not feed laborers. Nevertheless, by a mere change of the destination of the iron goods, he can cause laborers to be fed. Suppose that [the capitalist changed into wages what he had before spent] in buying plate and jewels; and, in order to render the effect perceptible, let us suppose that the change takes place on a considerable scale, and that a large sum is diverted from buying plate and jewels to employing productive laborers, whom we shall suppose to have been previously, like the Irish peasantry, only half employed and half fed. The laborers, on receiving their increased wages, will not lay them out in plate and jewels, but in food. There is not, however, additional food in the country; nor any unproductive laborers or animals, as in the former case, whose food is set free for productive purposes. Food will therefore be imported if possible; if not possible, the laborers will remain for a season on their short allowance: but the consequence of this change in the demand for commodities, occasioned by the change in the expenditure of capitalists from unproductive to productive, is that next year more food will be produced, and less plate and jewelry. So that again, without having had anything to do with the food of [pg 068]the laborers directly, the conversion by individuals of a portion of their property, no matter of what sort, from an unproductive destination to a productive, has had the effect of causing more food to be appropriated to the consumption of productive laborers. The distinction, then, between Capital and Not-capital, does not lie in the kind of commodities, but in the mind of the capitalist—in his will to employ them for one purpose rather than another; and all property, however ill adapted in itself for the use of laborers, is a part of capital, so soon as it, or the value to be received from it, is set apart for productive reinvestment.

§ 2. More Capital Devoted to Production than Actually Employed in it.

As whatever of the produce of the country is devoted to production is capital, so, conversely, the whole of the capital of the country is devoted to production. This second proposition, however, must be taken with some limitations and explanations. (1) A fund may be seeking for productive employment, and find none adapted to the inclinations of its possessor: it then is capital still, but unemployed capital. (2) Or the stock may consist of unsold goods, not susceptible of direct application to productive uses, and not, at the moment, marketable: these, until sold, are in the condition of unemployed capital.

This is not an important distinction. The goods are doubtless marketable at some price, if offered low enough. If no one wants them, then, by definition, they are not wealth so long as that condition exists.


(3) [Or] suppose that the Government lays a tax on the production in one of its earlier stages, as, for instance, by taxing the material. The manufacturer has to advance the tax, before commencing the manufacture, and is therefore under a necessity of having a larger accumulated fund than is required for, or is actually employed in, the production which he carries on. He must have a larger capital to maintain the same quantity of productive labor; or (what is equivalent) with a given capital he maintains less labor. (4) For another example: a farmer may enter on his farm at such a time of the year that he may be required to pay one, two, or even [pg 069]three quarters' rent before obtaining any return from the produce. This, therefore, must be paid out of his capital.

(5) Finally, that large portion of the productive capital of a country which is employed in paying the wages and salaries of laborers, evidently is not, all of it, strictly and indispensably necessary for production. As much of it as exceeds the actual necessaries of life and health (an excess which in the case of skilled laborers is usually considerable) is not expended in supporting labor, but in remunerating it, and the laborers could wait for this part of their remuneration until the production is completed.

The previous accumulation of commodities requisite for production must inevitably be large enough to cover necessaries, but need not be more, if the laborer is willing to wait for the additional amount of his wages (the amount of his unproductive consumption) until the completion of the industrial operation. In fact, however, the accumulation must be sufficient to pay the laborer all his wages from week to week, by force of custom (wherever there is any considerable division of labor), and also sufficient to purchase tools and materials. The various elements of capital are materials, instruments, and subsistence, giving “instruments” its wide signification which includes money (the tool of exchange), and other necessary appliances of each special kind of production.


In truth, it is only after an abundant capital had already been accumulated that the practice of paying in advance any remuneration of labor beyond a bare subsistence could possibly have arisen: since whatever is so paid is not really applied to production, but to the unproductive consumption of productive laborers, indicating a fund for production sufficiently ample to admit of habitually diverting a part of it to a mere convenience.

It will be observed that I have assumed that the laborers are always subsisted from capital:105 and this is obviously the fact, though the capital need not necessarily be furnished by a person called a capitalist.

The peasant does not subsist this year on the produce of this year's harvest, but on that of the last. The artisan is not living on the proceeds of the work he has in hand, but on those of work previously executed and disposed of. Each is supported by a small capital of his own, which he periodically replaces from the produce of his labor. The large capitalist is, in like manner, maintained from funds provided in advance.

§ 3. Examination of Cases Illustrative of the Idea of Capital.

That which is virtually capital to the individual is or is not capital to the nation, according as the fund which by the supposition he has not dissipated has or has not been dissipated by somebody else.

Let the reader consider, in the four following suppositions, whether or not the given capital has wholly dropped out of the circle in the diagram, page 67. In (3) and (4) the wealth is entirely dissipated; as it can not longer be in circle A, it can not, of course, be in circle B.


(1.) For example, let property of the value of ten thousand pounds, belonging to A, be lent to B, a farmer or manufacturer, and employed profitably in B's occupation. It is as much capital as if it belonged to B. A is really a farmer or manufacturer, not personally, but in respect of his property. Capital worth ten thousand pounds is employed in production—in maintaining laborers and providing tools and materials—which capital belongs to A, while B takes the trouble of employing it, and receives for his remuneration the difference between the profit which it yields and the interest he pays to A. This is the simplest case.

(2.) Suppose next that A's ten thousand pounds, instead of being lent to B, are lent on mortgage to C, a landed proprietor, by whom they are employed in improving the productive powers of his estate, by fencing, draining, road-making, or permanent manures. This is productive employment. The ten thousand pounds are sunk, but not [pg 071]dissipated. They yield a permanent return; the land now affords an increase of produce, sufficient in a few years, if the outlay has been judicious, to replace the amount, and in time to multiply it manifold. Here, then, is a value of ten thousand pounds, employed in increasing the produce of the country. This constitutes a capital, for which C, if he lets his land, receives the returns in the nominal form of increased rent; and the mortgage entitles A to receive from these returns, in the shape of interest, such annual sum as has been agreed on.

(3.) Suppose, however, that C, the borrowing landlord, is a spendthrift, who burdens his land not to increase his fortune but to squander it, expending the amount in equipages and entertainments. In a year or two it is dissipated, and without return. A is as rich as before; he has no longer his ten thousand pounds, but he has a lien on the land, which he could still sell for that amount. C, however, is ten thousand pounds poorer than formerly; and nobody is richer. It may be said that those are richer who have made profit out of the money while it was being spent. No doubt if C lost it by gaming, or was cheated of it by his servants, that is a mere transfer, not a destruction, and those who have gained the amount may employ it productively. But if C has received the fair value for his expenditure in articles of subsistence or luxury, which he has consumed on himself, or by means of his servants or guests, these articles have ceased to exist, and nothing has been produced to replace them: while if the same sum had been employed in farming or manufacturing, the consumption which would have taken place would have been more than balanced at the end of the year by new products, created by the labor of those who would in that case have been the consumers. By C's prodigality, that which would have been consumed with a return is consumed without return. C's tradesmen may have made a profit during the process; but, if the capital had been expended productively, an equivalent profit would have been made by builders, fencers, tool-makers, and the tradespeople [pg 072]who supply the consumption of the laboring-classes; while, at the expiration of the time (to say nothing of an increase), C would have had the ten thousand pounds or its value replaced to him, which now he has not. There is, therefore, on the general result, a difference, to the disadvantage of the community, of at least ten thousand pounds, being the amount of C's unproductive expenditure. To A, the difference is not material, since his income is secured to him, and while the security is good, and the market rate of interest the same, he can always sell the mortgage at its original value. To A, therefore, the lien of ten thousand pounds on C's estate is virtually a capital of that amount; but is it so in reference to the community? It is not. A had a capital of ten thousand pounds, but this has been extinguished—dissipated and destroyed by C's prodigality. A now receives his income, not from the produce of his capital, but from some other source of income belonging to C, probably from the rent of his land, that is, from payments made to him by farmers out of the produce of their capital.

(4.) Let us now vary the hypothesis still further, and suppose that the money is borrowed, not by a landlord, but by the state. A lends his capital to Government to carry on a war: he buys from the state what are called government securities; that is, obligations on the Government to pay a certain annual income. If the Government employed the money in making a railroad, this might be a productive employment, and A's property would still be used as capital; but since it is employed in war, that is, in the pay of officers and soldiers who produce nothing, and in destroying a quantity of gunpowder and bullets without return, the Government is in the situation of C, the spendthrift landlord, and A's ten thousand pounds are so much national capital which once existed, but exists no longer—virtually thrown into the sea, as wealth or production is concerned; though for other reasons the employment of it may have been justifiable. A's subsequent income is derived, not from the produce of his own capital, but from taxes drawn from the produce [pg 073]of the remaining capital of the community; to whom his capital is not yielding any return, to indemnify them for the payment; it is all lost and gone, and what he now possesses is a claim on the returns to other people's capital and industry.

The breach in the capital of the country was made when the Government spent A's money: whereby a value of ten thousand pounds was withdrawn or withheld from productive employment, placed in the fund for unproductive consumption, and destroyed without equivalent.

The United States had borrowed in the late civil war, by August 31, 1865, $2,845,907,626; and, to June 30, 1881, the Government had paid in interest on its bonds, “from taxes drawn from the produce of the remaining capital,” $1,270,596,784, as an income to bondholders. From this can be seen the enormous waste of wealth to the United States during the war, and consequently the less existing capital to-day in this country; since, under the same inducements to save, the smaller the outside circle (wealth), the less the inside circle (capital) must be.
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Re: Principles Of Political Economy, by John Stuart Mill

Postby admin » Tue May 19, 2020 10:19 am

Chapter IV. Fundamental Propositions Respecting Capital.

§ 1. Industry is Limited by Capital.


The first of these propositions is, that industry is limited by capital. To employ labor in a manufacture is to invest capital in the manufacture. This implies that industry can not be employed to any greater extent than there is capital to invest. The proposition, indeed, must be assented to as soon as it is distinctly apprehended. The expression “applying capital” is of course metaphorical: what is really applied is labor; capital being an indispensable condition. The food of laborers and the materials of production have no productive power; but labor can not exert its productive power unless provided with them. There can be no more industry than is supplied with materials to work up and food to eat. Self-evident as the thing is, it is often forgotten that the people of a country are maintained and have their wants supplied, not by the produce of present labor, but of past.

Therefore, as capital increases, more labor can be employed. When the Pittsburg rioters, in 1877, destroyed property, or the product of past labor, they did not realize then that that property might, but now could never again, be employed for productive purposes, and thereby support laborers.


They consume what has been produced, not what is about to be produced. Now, of what has been produced, a part only is allotted to the support of productive labor; and there will not and can not be more of that labor than the portion [pg 075]so allotted (which is the capital of the country) can feed, and provide with the materials and instruments of production.

Because industry is limited by capital, we are not, however, to infer that it always reaches that limit. There may not be as many laborers obtainable as the capital would maintain and employ. This has been known to occur in new colonies, where capital has sometimes perished uselessly for want of labor.

In the farming districts of our Middle and Western States, in harvest-time, crops have been often of late years ruined because farm-hands could not be obtained. In earlier days, President John Adams was unable to hire a man in Washington to cut wood in the surrounding forests with which to warm the White House.


The unproductive consumption of productive laborers, the whole of which is now supplied by capital, might cease, or be postponed, until the produce came in; and additional productive laborers might be maintained with the amount.

[Governments] can create capital. They may lay on taxes, and employ the amount productively. They may do what is nearly equivalent: they may lay taxes on income or expenditure, and apply the proceeds toward paying off the public debts. The fund-holder, when paid off, would still desire to draw an income from his property, most of which, therefore, would find its way into productive employment, while a great part of it would have been drawn from the fund for unproductive expenditure, since people do not wholly pay their taxes from what they would have saved, but partly, if not chiefly, from what they would have spent.

§ 2. Increase of Capital gives Increased Employment to Labor, Without Assignable Bounds.

While, on the one hand, industry is limited by capital, so, on the other, every increase of capital gives, or is capable of giving, additional employment to industry; and this without assignable limit. I do not mean to deny that the capital, or part of it, may be so employed as not to support laborers, being fixed in machinery, buildings, improvement of land, and the like. In any large increase of capital a considerable portion will generally be thus employed, and will only co-operate with laborers, not maintain them.

It will be remembered, however, that subsistence is but one part or element of capital; that instruments and materials form a large part of capital. But still the question of mere maintenance is rightfully discussed, because it is asserted to-day that, while the rich are growing richer, the poor lack even the food to keep them alive; and throughout this discussion Mr. Mill has in view the fact that laborers may exist in the community either “half fed or unemployed.”


What I do intend to assert is, that the portion which is destined to their maintenance may (supposing no alteration in anything else) be indefinitely increased, without creating an impossibility of finding the employment: in other words, that if there are human beings capable of work, and food to feed them, they may always be employed in producing something. It is very much opposed to common doctrines.106 There is not an opinion more general among mankind than this, that the unproductive expenditure of the rich is necessary to the employment of the poor.

It is to be noticed that, in fact, after the arts have so far advanced in a community that mankind can obtain by their exertion more than the amount of the mere necessaries of life sufficient on the average for the subsistence of all, any further production rendered possible to the human race by new discoveries and processes is naturally unproductively consumed, and that consequently a demand for labor for unproductive consumption is essential for the employment of all existing laborers. This, however, can be done, because enough capital has been brought into existence to create the demand for the labor. Yet it is clear that it is not expenditure, but capital, by which employment is given to the poor.


Suppose that every capitalist came to be of opinion that, not being more meritorious than a well-conducted laborer, he ought not to fare better; and accordingly laid by, from conscientious motives, the surplus of his profits; unproductive expenditure is now reduced to its lowest limit: and it is asked, How is the increased capital to find employment? [pg 077]Who is to buy the goods which it will produce? There are no longer customers even for those which were produced before. The goods, therefore (it is said), will remain unsold; they will perish in the warehouses, until capital is brought down to what it was originally, or rather to as much less as the demand of the customers has lessened. But this is seeing only one half of the matter. In the case supposed, there would no longer be any demand for luxuries on the part of capitalists and land-owners. But, when these classes turn their income into capital, they do not thereby annihilate their power of consumption; they do but transfer it from themselves to the laborers to whom they give employment. Now, there are two possible suppositions in regard to the laborers: either there is, or there is not, an increase of their numbers proportional to the increase of capital. (1.) If there is, the case offers no difficulty. The production of necessaries for the new population takes the place of the production of luxuries for a portion of the old, and supplies exactly the amount of employment which has been lost. (2.) But suppose that there is no increase of population. The whole of what was previously expended in luxuries, by capitalists and landlords, is distributed among the existing laborers, in the form of additional wages. We will assume them to be already sufficiently supplied with necessaries.

What follows? That the laborers become consumers of luxuries; and the capital previously employed in the production of luxuries is still able to employ itself in the same manner; the difference being, that the luxuries are shared among the community generally, instead of being confined to a few, supposing that the power of their labor were physically sufficient to produce all this amount of indulgences for their whole number. Thus the limit of wealth is never deficiency of consumers, but of producers and productive power. Every addition to capital gives to labor either additional employment or additional remuneration.

That laborers should get more (a) by capitalists abstaining from unproductive expenditure than (b) by expenditure [pg 078]in articles unproductively consumed is a question difficult for many to comprehend, and needs all the elucidation possible. To start with, no one ever knew of a community all of whose wants were satisfied: in fact, civilization is constantly leading us into new fields of enjoyment, and results in a constant differentiation of new desires. To satisfy these wants is the spring to nearly all production and industry. There can, therefore, be no stop to production arising from lack of desire for commodities. “The limit of wealth is never deficiency of consumers,” but of productive power.

Now, in supposition (2) of the text, remember that the laborers are supposed not to be employed up to their full productive power. If all capitalists abstain from unproductive consumption, and devote that amount of wealth to production, then, since there can be no production without labor, the same number of laborers have offered to them in the aggregate a larger sum of articles for their exertions, which is equivalent to saying they receive additional wages.

But some persons want to see the process in the concrete, and the same principle may be illustrated by a practical case. It is supposed that all laborers have the necessaries of life only, but none of the comforts, decencies, and luxuries. Let A be a farmer in New York, who can also weave carpets, and B a lumberman in Maine. A begins to want a better house, and B wishes a carpet, both having food, clothing, and shelter. One of the capitalists abstaining from unproductive consumption, as above, is X, who, knowing the two desires of A and B, presents himself as a middle-man (i.e., he gives a market for both men, as is found in every center of trade, as well as in a country store), furnishing A the tools, materials, etc., and giving him the promise of lumber if he will create the carpet, and promising B the carpet if he will likewise produce the additional lumber. To be more matter of fact, X buys the carpet of A, and sells it to B for the lumber. Thus two new articles have been created, and for their exertions A has received additional wages (either in the form of lumber, or of the money paid him for the carpet), and B has received additional wages (either in the form of a carpet, or the money paid him by X for the lumber). If A and B are regarded as typifying all the laborers, and X all the above capitalists, in the multiplicity of actual exchanges, it will be seen that A and B are creating new articles to satisfy their own demand, instead of meeting the demands of X. If their primary wants are already supplied, then they take their additional wages in the form of comforts and decencies. When Class X forego their consumption, but add that amount to capital, they do not give up their title to that capital, but they transfer the use of [pg 079]it, or their consuming power, to others for the time being. This question will be more fully discussed in § 6.


§ 3. Capital is the result of Saving, and all Capital is Consumed.

A second fundamental theorem respecting capital relates to the source from which it is derived. It is the result of saving.

If all persons were to expend in personal indulgences all that they produce, and all the income that they receive from what is produced by others, capital could not increase. Some saving, therefore, there must have been, even in the simplest of all states of economical relations; people must have produced more than they used, or used less than they produced. Still more must they do so before they can employ other laborers, or increase their production beyond what can be accomplished by the work of their own hands. If it were said, for instance, that the only way to accelerate the increase of capital is by increase of saving, the idea would probably be suggested of greater abstinence and increased privation. But it is obvious that whatever increases the productive power of labor, creates an additional fund to make savings from, and enables capital to be enlarged, not only without additional privation, but concurrently with an increase of personal consumption. Nevertheless, there is here an increase of saving, in the scientific sense. Though there is more consumed, there is also more spared. There is a greater excess of production over consumption. To consume less than is produced is saving; and that is the process by which capital is increased; not necessarily by consuming less, absolutely.

The economic idea of saving involves, of course, the intention of using the wealth in reproduction. Saving, without this meaning, results only in hoarding of wealth, and while hoarded this amount is not capital. To explain the process by which capital comes into existence, Bastiat has given the well-known illustration of the plane in his “Sophisms of Protection.”107


A fundamental theorem respecting capital, closely connected with the one last discussed, is, that although saved, [pg 080]and the result of saving, it is nevertheless consumed. The word saving does not imply that what is saved is not consumed, nor even necessarily that its consumption is deferred; but only that, if consumed immediately, it is not consumed by the person who saves it. If merely laid by for future use, it is said to be hoarded; and, while hoarded, is not consumed at all. But, if employed as capital, it is all consumed, though not by the capitalist. Part is exchanged for tools or machinery, which are worn out by use; part for seed or materials, which are destroyed as such by being sown or wrought up, and destroyed altogether by the consumption of the ultimate product. The remainder is paid in wages to productive laborers, who consume it for their daily wants; or if they in their turn save any part, this also is not, generally speaking, hoarded, but (through savings-banks, benefit clubs, or some other channel) re-employed as capital, and consumed. To the vulgar, it is not at all apparent that what is saved is consumed. To them, every one who saves appears in the light of a person who hoards. The person who expends his fortune in unproductive consumption is looked upon as diffusing benefits all around, and is an object of so much favor, that some portion of the same popularity attaches even to him who spends what does not belong to him; who not only destroys his own capital, if he ever had any, but, under pretense of borrowing, and on promise of repayment, possesses himself of capital belonging to others, and destroys that likewise.

This popular error comes from attending to a small portion only of the consequences that flow from the saving or the spending; all the effects of either, which are out of sight, being out of mind. There is, in the one case, a wearing out of tools, a destruction of material, and a quantity of food and clothing supplied to laborers, which they destroy by use; in the other case, there is a consumption, that is to say, a destruction, of wines, equipages, and furniture. Thus far, the consequence to the national wealth has been much the same; an equivalent quantity of it has been destroyed in [pg 081]both cases. But in the spending, this first stage is also the final stage; that particular amount of the produce of labor has disappeared, and there is nothing left; while, on the contrary, the saving person, during the whole time that the destruction was going on, has had laborers at work repairing it; who are ultimately found to have replaced, with an increase, the equivalent of what has been consumed.

Almost all expenditure being carried on by means of money, the money comes to be looked upon as the main feature in the transaction; and since that does not perish, but only changes hands, people overlook the destruction which takes place in the case of unproductive expenditure. The money being merely transferred, they think the wealth also has only been handed over from the spendthrift to other people. But this is simply confounding money with wealth. The wealth which has been destroyed was not the money, but the wines, equipages, and furniture which the money purchased; and, these having been destroyed without return, society collectively is poorer by the amount. In proportion as any class is improvident or luxurious, the industry of the country takes the direction of producing luxuries for their use; while not only the employment for productive laborers is diminished, but the subsistence and instruments which are the means of such employment do actually exist in smaller quantity.

§ 4. Capital is kept up by Perpetual Reproduction, as shown by the Recovery of Countries from Devastation.

To return to our fundamental theorem. Everything which is produced is consumed—both what is saved and what is said to be spent—and the former quite as rapidly as the latter. All the ordinary forms of language tend to disguise this. When people talk of the ancient wealth of a country, of riches inherited from ancestors, and similar expressions, the idea suggested is, that the riches so transmitted were produced long ago, at the time when they are said to have been first acquired, and that no portion of the capital of the country was produced this year, except as much as may have been this year added to the total amount. The fact is far otherwise. The greater part, in value, of the [pg 082]wealth now existing [in the United States] has been produced by human hands within the last twelve months.

“In the State of Massachusetts it is estimated that the capital, on the average, belonging to each individual does not exceed $600, and that the average annual product per capita is about $200; so that the total capital is the product of only two or three years' labor.”108


The land subsists, and the land is almost the only thing that subsists. Everything which is produced perishes, and most things very quickly. Most kinds of capital are not fitted by their nature to be long preserved. Westminster Abbey has lasted many centuries, with occasional repairs; some Grecian sculptures have existed above two thousand years; the Pyramids perhaps double or treble that time. But these were objects devoted to unproductive use. Capital is kept in existence from age to age not by preservation, but by perpetual reproduction; every part of it is used and destroyed, generally very soon after it is produced, but those who consume it are employed meanwhile in producing more. The growth of capital is similar to the growth of population. Every individual who is born, dies, but in each year the number born exceeds the number who die; the population, therefore, always increases, though not one person of those composing it was alive until a very recent date.

This perpetual consumption and reproduction of capital afford the explanation of what has so often excited wonder, the great rapidity with which countries recover from a state of devastation. The possibility of a rapid repair of their disasters mainly depends on whether the country has been depopulated. If its effective population have not been extirpated at the time, and are not starved afterward, then, with the same skill and knowledge which they had before, with their land and its permanent improvements undestroyed, and the more durable buildings probably unimpaired, or only partially injured, they have nearly all the requisites for their [pg 083]former amount of production. If there is as much of food left to them, or of valuables to buy food, as enables them by any amount of privation to remain alive and in working condition, they will, in a short time, have raised as great a produce, and acquired collectively as great wealth and as great a capital, as before, by the mere continuance of that ordinary amount of exertion which they are accustomed to employ in their occupations. Nor does this evince any strength in the principle of saving, in the popular sense of the term, since what takes place is not intentional abstinence, but involuntary privation.

The world has at any given period the power, under existing conditions of production and skill, to create a certain amount of wealth, as represented by the inner rectangle, W. Each increased power of production arising from conquests over Nature's forces, as the use of steam and labor-saving machinery, permits the total wealth to be enlarged, as, in the figure, to rectangle W'. For the production of wealth are required labor, capital, and land; therefore, if the labor and land are not destroyed by war, there need not necessarily be in existence all the previous capital. If there are the necessaries for all, and only sufficient tools to accomplish the work, they will, in a few years, again recreate all the wealth that formerly existed, regain the same position as before, and go on slowly increasing the total wealth just as fast as improvements in the arts of production render it possible.


Image
Illustration. Inner rectangle W, surrounded by rectangle W'.

§ 5. Effects of Defraying Government Expenditure by Loans.

[An application of this truth has been made to the question of raising government supplies for war purposes.] Loans, being drawn from capital (in lieu of taxes, which would generally have been paid from income, and made up in part or altogether by increased economy), must, according to the principles we have laid down, tend to impoverish the country: yet the years in which expenditure of this sort has been on the greatest scale have often been years of great apparent prosperity: the wealth and resources of the country, instead of diminishing, have given every sign of [pg 084]rapid increase during the process, and of greatly expanded dimensions after its close.

During our civil war, at the same time that wealth was being destroyed on an enormous scale, there was a very general feeling that trade was good, and large fortunes were made. At the close of the war a period of speculation and overtrading continued until it was brought to a disastrous close by the panic of 1873. Much of this speculation, however, was due to an inflated paper currency.


We will suppose the most unfavorable case possible: that the whole amount borrowed and destroyed by the Government was abstracted by the lender from a productive employment in which it had actually been invested. The capital, therefore, of the country, is this year diminished by so much. But, unless the amount abstracted is something enormous, there is no reason in the nature of the case why next year the national capital should not be as great as ever. The loan can not have been taken from that portion of the capital of the country which consists of tools, machinery, and buildings. It must have been wholly drawn from the portion employed in paying laborers: and the laborers will suffer accordingly. But if none of them are starved, if their wages can bear such an amount of reduction, or if charity interposes between them and absolute destitution, there is no reason that their labor should produce less in the next year than in the year before. If they produce as much as usual, having been paid less by so many millions sterling, these millions are gained by their employers. The breach made in the capital of the country is thus instantly repaired, but repaired by the privations and often the real misery of the laboring-class.

As Mr. Mill points out, during the Napoleonic wars, in France the withdrawal of laborers from industry into the army was so large that it caused a rise of wages, and a fall in the profits of capital; while in England, inasmuch as capital, rather than men, was sent to the Continent in the war, the very reverse took place: the diversion of “hundreds of millions of capital from productive employment” caused a fall of wages, [pg 085]and the prosperity of the capitalist class, while the permanent productive resources did not fall off.


This leads to the vexed question to which Dr. Chalmers has very particularly adverted: whether the funds required by a government for extraordinary unproductive expenditure are best raised by loans, the interest only being provided by taxes, or whether taxes should be at once laid on to the whole amount; which is called, in the financial vocabulary, raising the whole of the supplies within the year. Dr. Chalmers is strongly for the latter method. He says the common notion is that, in calling for the whole amount in one year, you require what is either impossible, or very inconvenient; that the people can not, without great hardship, pay the whole at once out of their yearly income; and that it is much better to require of them a small payment every year in the shape of interest, than so great a sacrifice once for all. To which his answer is, that the sacrifice is made equally in either case. Whatever is spent can not but be drawn from yearly income. The whole and every part of the wealth produced in the country forms, or helps to form, the yearly income of somebody. The privation which it is supposed must result from taking the amount in the shape of taxes is not avoided by taking it in a loan. The suffering is not averted, but only thrown upon the laboring-classes, the least able, and who least ought, to bear it: while all the inconveniences, physical, moral, and political, produced by maintaining taxes for the perpetual payment of the interest, are incurred in pure loss. Whenever capital is withdrawn from production, or from the fund destined for production, to be lent to the state and expended unproductively, that whole sum is withheld from the laboring-classes: the loan, therefore, is in truth paid off the same year; the whole of the sacrifice necessary for paying it off is actually made: only it is paid to the wrong persons, and therefore does not extinguish the claim; and paid by the very worst of taxes, a tax exclusively on the laboring-class. And, after having, in this most painful and unjust of ways, gone through [pg 086]the whole effort necessary for extinguishing the debt, the country remains charged with it, and with the payment of its interest in perpetuity.

The United States, for example, borrows capital from A, with which it buys stores from B. If the loan all comes from within the country, A's capital is borrowed, when the United States should have taken that amount outright by taxation. When the money is borrowed of A, the laborers undergo the sacrifice, the title to the whole sum remains in A's hands, and the claim against the Government by A still exists; while, if the amount were taken by taxation, the title to the sum raised is in the state, and it is paid to the right person.

The experience of the United States during the civil war is an illustration of this principle. It is asserted that, as a matter of fact, the total expenses of the war were defrayed by the Northern States, during the four years of its continuance, out of surplus earnings; and yet at the close of the conflict a debt of $2,800,000,000 was saddled on the country.

The United States borrowed $2,400,000,000
Revenue during that time 1,700,000,000
Total cost of the war $4,100,000,000

In reality we borrowed only about $1,500,000,000 instead of $2,400,000,000, since (1) the Government issued paper which depreciated, and yet received it at par in subscriptions for loans. Moreover, the total cost would have been much reduced had we issued no paper and (2) thereby not increased the prices of goods to the state, and (3) if no interest account had been created by borrowing. But could the country have raised the whole sum each year by taxation? In the first fiscal year after the war the United States paid in war taxes $650,000,000. At the beginning of the struggle, to June 30, 1862, the expenditure was $515,000,000, and by June 30, 1863, it had amounted to $1,098,000,000; so that $600,000,000 of taxes a year would have paid the war expenses, and left us free of debt at the close.

A confirmatory experience is that of England during the Continental wars, 1793-1817:

Total war expenditures £1,060,000,000
Interest charge on the existing debt 235,000,000
Total amount required £1,295,000,000
Revenue for that period 1,145,000,000
Deficit £150,000,000

To provide for this deficit, the Government actually increased [pg 087]its debt by £600,000,000. A slight additional exertion would have provided £150,000,000 more of revenue, and saved £450,000,000 to the taxpayers.109


The practical state of the case, however, seldom exactly corresponds with this supposition. The loans of the less wealthy countries are made chiefly with foreign capital, which would not, perhaps, have been brought in to be invested on any less security than that of the Government: while those of rich and prosperous countries are generally made, not with funds withdrawn from productive employment, but with the new accumulations constantly making from income, and often with a part of them which, if not so taken, would have migrated to colonies, or sought other investments abroad.

§ 6. Demand for Commodities is not Demand for Labor.

Mr. Mill's statement of the theorem respecting capital, discussed in the argument that “demand for commodities is not demand for labor,” needs some simplification. For this purpose represent by the letters of the alphabet, A, B, C, ... X, Y, Z, the different kinds of commodities produced in the world which are exchanged against each other in the process of reaching the consumers. This exchange of commodities for each other, it need hardly be said, does not increase the number or quantity of commodities already in existence; since their production, as we have seen, requires labor and capital in connection with natural agents. Mere exchange does not alter the quantity of commodities produced.

To produce a plow, for example, the maker must have capital (in the form of subsistence, tools, and materials) of which some one has foregone the use by a process of saving in order that something else, in this case a plow, may be produced. This saving must be accomplished first to an amount sufficient to keep production going on from day to day. This capital is all consumed, but in a longer or shorter term (depending on the particular industrial operation) it is reproduced in new forms adapted to the existing wants of man. Moreover, without any new exertion of abstinence, this amount of capital may be again consumed and reproduced, and so go on forever, after once being saved (if never destroyed in the mean while, thereby passing out of the category not only of capital, but also of wealth). The total capital of the country, then, is not the sum [pg 088]of one year's capital added to that of another; but that of last year reproduced in a new form this year, plus a fractional increase arising from new savings. But, once saved, capital can go on constantly aiding in production forever. This plow when made is exchanged (if a plow is wanted, and the production is properly adjusted to meet desires) for such other products, food, means for repairing tools, etc., as give back to the plow-maker all the commodities consumed in its manufacture (with an increase, called profit).

Returning to our illustration of the alphabet, it is evident that a certain amount of capital united with labor (constituting what may be called a productive engine) lies behind the production of A (such as the plow, for example), and to which its existence is due. The same is true of Z. Suppose that 5,000 of Z is produced, of which 4,000 is enough to reimburse the capital used up by labor in the operation, and that the owner of commodity Z spends the remaining 1,000 Z in exchange for 1,000 of commodity A. It is evident (no money being used as yet) that this exchange of goods is regulated entirely by the desires of the two parties to the transaction. No more goods are created simply by the exchange; the simple process of exchange does not keep the laborers engaged on A occupied. And yet the owner of Z had a demand for commodity A; his demand was worthless, except through the fact of his production, which gave him actual wealth, or purchasing power, in the form of Z. His demand for commodity A was not the thing which employed the laborers engaged in producing A, although the demand (if known beforehand) would cause them to produce A rather than some other article—that is, the demand of one quantity of wealth for a certain thing determines the direction taken by the owner of capital A. But, since the exchange is merely the form in which the demand manifests itself, it is clear that the demand does not add to production, and so of itself does not employ labor. Of course, if there were no desires, there would be no demand, and so no production and employment of labor. But we may conclude by formulating the proposition, that wealth (Z) offered for commodities (A) necessitates the use of other wealth (than Z) as capital to support the operation by which those commodities (A) are produced. It makes no difference to the existing employment of labor what want is supplied by the producers of A, whether it is velvet (intended for unproductive consumption) or plows (intended for productive consumption). Even if Z is no longer offered in exchange for A, and if then A is no longer to be made, the laborers formerly occupied in producing A—if warning is given of the coming change; if not, loss results—having the plant, can produce something else wanted by the owner of Z.

Now into a community, as here pictured, all laborers supposed to be occupied, and all capital employed in producing A, B, C, ... X, Y, Z, imagine the coming of a shipwrecked crew. Instead of exchanging Z for A, as before, the owner of Z may offer his wealth to the crew to dance for him. The essential question is, Is more employment offered to labor by this action than the former exchange for A? That is, it is a question merely of distribution of wealth among the members of a community. The labor engaged on A is not thrown out of employment (if they have warning). There is no more wealth in existence, but it is differently distributed than before: the crew, instead of the former owner, now have 1,000 of Z. So far as the question of employment is concerned, it makes no difference on what terms the crew got it: they might have been hired to stand in a row and admire the owner of Z when he goes out. But yet it may naturally be assumed that the crew were employed productively. In this case, after they have consumed the wealth Z, they have brought into existence articles in the place of those they consumed. But, although this last operation is economically more desirable for the future growth of wealth, yet no more laborers for the time were employed than if the crew had merely danced. The advantages or disadvantages of productive consumption are not to be discussed here. It is intended, however, to establish the proposition that wealth paid out in wages, or advanced to producers, itself supports labor; that wealth offered directly to laborers in this way employs more labor than when merely offered in exchange for other goods, or, in other words, by a demand for commodities; that an increased demand for commodities does not involve an increased demand for labor, since this can only be created by capital. The essential difference is, that the owner of Z in one case, by exchanging goods for A, did not forego his consuming power; in the other case, by giving Z to the unemployed crew, he actually went through the process of saving by foregoing his personal consumption, and handing it over to the crew. If the crew use it unproductively, it is in the end the same as if the owner of Z had done it; but meanwhile the additional laborers were employed. If the crew be employed productively, then the saving once made will go on forever, as explained above, and the world will be the richer by the wealth this additional capital can create.

It may now be objected that, if A is no longer in demand, the laborers in that industry will be thrown out of employment. Out of that employment certainly, but not out of every other. One thousand of Z was able to purchase certain results of labor and capital in industry A, when in the hands of its former owner; and now when in the hands of the crew it will [pg 090]control, as purchasing power, equivalent results of labor and capital. The crew may not want the same articles as the former owner of Z, but they will want the equivalents of 1,000 of Z in something, and that something will be produced now instead of A. The whole process may be represented by this diagram.

Image
Illustration, showing interrelationships between A, Z, and Crew.

1. Z is exchanged against A, and the crew remain unemployed.

2. Here the crew possess Z, and they themselves exchange Z for whatever A may produce in satisfaction of their wants, and the crew are then employed.

It is possible that the intervention of money blinds some minds to a proper understanding of the operations described above. The supposition, as given, applies to a condition of barter, but is equally true if money is used.110 Imagine a display of all the industries of the world, A, B, C, ... X, Y, Z, presented within sight on one large field, and at the central spot the producer of gold and silver. When Z is produced, it is taken to the gold-counter, and exchanged for money; when A is produced, the same is done. Then the former money is given for A, and the latter for Z, so that in truth A is exchanged against Z through the medium of money, just as before money was considered. Now, it may be said by an objector, “If A is not wanted, after it is produced, and can not be sold, because the demand from Z has been withdrawn, then the capital used for A will not be returned, and the laborers in A will be thrown out of employment.” The answer is, of course, that the state of things here contemplated is a permanent and normal one wherein production is correctly adapted to human desires. If A is found not to be wanted, after the production of it, an industrial blunder has been committed, and wealth is wasted just as when burned up. It is ill-assorted production. The trouble is not in a lack of demand for what A may produce (of something else), but with the producers of A in not making that for which there were desires, from ignorance or lack of early information of the disposition of wealth Z. In practice, however, it will be found that most goods are made upon “orders,” and, except under peculiar circumstances, [pg 091]not actually produced unless a market is foreseen. Indeed, as every man knows, the most important function of a successful business man is the adaptation of production to the market, that is, to the desires of consumers.

One other form of this question needs brief mention. It is truly remarked that a large portion of industrial activity is engaged to-day, not in supplying productive consumption, such as food, shelter, and clothing, but in supplying the comforts and luxuries of low and high alike, or unproductive consumption; now, if there were not a demand for luxuries and comforts, many vast industries would cease to exist, and labor would be thrown out of employment. Is not a demand for such commodities, then, a cause of the present employment of labor? No, it is not. Luxuries and comforts are of course the objects of human wants; but a desire alone, without purchasing power, can not either buy or produce these commodities. To obtain a piano, one must produce goods, and this implies the possession of capital, by which to bring into existence goods, or purchasing power, to be offered for a piano. Nor is this sufficient. Even after a man, A, for example, offers purchasing power, he will not get a piano unless there exists an accumulation of unemployed capital, together with labor ready to manufacture the instrument. If capital were all previously occupied, no piano could be made, although A stood offering an equivalent in valuable goods. It may be said that A himself has the means. He has the wealth, and if he is willing to forego the use of this wealth, or, in other words, save it by devoting it to reproduction in the piano industry—that is, create the capital necessary for the purpose—then the piano can be made. But this shows again that, not a mere desire, but the existence of capital, is necessary to the production, and so to the employment of labor. An increased demand for commodities, therefore, does not give additional employment to labor, unless there be capital to support the labor.

Some important corollaries result from this proposition: (a.) When a country by legislation creates a home demand for commodities, that does not of itself give additional employment to labor. If the goods had before been purchased abroad, under free discretion, then if produced at home they must require more capital and labor, or they would not have been brought from foreign countries. If produced at home, it would require, to purchase them, more of what was formerly sent abroad; or some must do without. The legislation can not, ipso facto, create capital, and only by an increase of capital can more employment result. It is possible, however, that legislation might cause a more effective use of existing capital; but that must be a question of fact, to be settled by circumstances [pg 092]in each particular case. It is not a thing to be governed by principles.

(b.) It follows from the above proposition also that taxes levied on the rich, and paid by a saving from their consumption of luxuries, do not fall on the poor because of a lessened demand for commodities; since, as we have seen, that demand does not create or diminish the demand for labor. But, if the taxes levied on the rich are paid by savings from what the rich would have expended in wages, then if the Government spends the amount of revenue thus taken in the direct purchase of labor, as of soldiers and sailors, the tax does not fall on the laboring-class taken as a whole. When the Government takes that wealth which was formerly capital, burns it up, or dissipates it in war, it ceases to exist any longer as a means of again producing wealth, or of employing labor.
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Re: Principles Of Political Economy, by John Stuart Mill

Postby admin » Tue May 19, 2020 10:23 am

Chapter V. On Circulating And Fixed Capital.

§ 1. Fixed and Circulating Capital.


Of the capital engaged in the production of any commodity, there is a part which, after being once used, exists no longer as capital; is no longer capable of rendering service to production, or at least not the same service, nor to the same sort of production. Such, for example, is the portion of capital which consists of materials. The tallow and alkali of which soap is made, once used in the manufacture, are destroyed as alkali and tallow. In the same division must be placed the portion of capital which is paid as the wages, or consumed as the subsistence, of laborers. That part of the capital of a cotton-spinner which he pays away to his work-people, once so paid, exists no longer as his capital, or as a cotton-spinner's capital. Capital which in this manner fulfills the whole of its office in the production in which it is engaged, by a single use, is called Circulating Capital. The term, which is not very appropriate, is derived from the circumstance that this portion of capital requires to be constantly renewed by the sale of the finished product, and when renewed is perpetually parted with in buying materials and paying wages; so that it does its work, not by being kept, but by changing hands.

Another large portion of capital, however, consists in instruments of production, of a more or less permanent character; which produce their effect not by being parted with, but by being kept; and the efficacy of which is not exhausted by a single use. To this class belong buildings, [pg 094]machinery, and all or most things known by the name of implements or tools. The durability of some of these is considerable, and their function as productive instruments is prolonged through many repetitions of the productive operation. In this class must likewise be included capital sunk (as the expression is) in permanent improvements of land. So also the capital expended once for all, in the commencement of an undertaking, to prepare the way for subsequent operations: the expense of opening a mine, for example; of cutting canals, of making roads or docks. Other examples might be added, but these are sufficient. Capital which exists in any of these durable shapes, and the return to which is spread over a period of corresponding duration, is called Fixed Capital.

Of fixed capital, some kinds require to be occasionally or periodically renewed. Such are all implements and buildings: they require, at intervals, partial renewal by means of repairs, and are at last entirely worn out. In other cases the capital does not, unless as a consequence of some unusual accident, require entire renewal. A dock or a canal, once made, does not require, like a machine, to be made again, unless purposely destroyed. The most permanent of all kinds of fixed capital is that employed in giving increased productiveness to a natural agent, such as land.

To return to the theoretical distinction between fixed and circulating capital. Since all wealth which is destined to be employed for reproduction comes within the designation of capital, there are parts of capital which do not agree with the definition of either species of it; for instance, the stock of finished goods which a manufacturer or dealer at any time possesses unsold in his warehouses. But this, though capital as to its destination, is not yet capital in actual exercise; it is not engaged in production, but has first to be sold or exchanged, that is, converted into an equivalent value of some other commodities, and therefore is not yet either fixed or circulating capital, but will become either one or the other, or be eventually divided between them.

§ 2. Increase of Fixed Capital, when, at the Expense of Circulating, might be Detrimental to the Laborers.

There is a great difference between the effects of circulating and those of fixed capital, on the amount of the gross produce of the country. Circulating capital being destroyed as such, the result of a single use must be a reproduction equal to the whole amount of the circulating capital used, and a profit besides. This, however, is by no means necessary in the case of fixed capital. Since machinery, for example, is not wholly consumed by one use, it is not necessary that it should be wholly replaced from the product of that use. The machine answers the purpose of its owner if it brings in, during each interval of time, enough to cover the expense of repairs, and the deterioration in value which the machine has sustained during the same time, with a surplus sufficient to yield the ordinary profit on the entire value of the machine.

From this it follows that all increase of fixed capital, when taking place at the expense of circulating, must be, at least temporarily, prejudicial to the interests of the laborers. This is true, not of machinery alone, but of all improvements by which capital is sunk; that is, rendered permanently incapable of being applied to the maintenance and remuneration of labor.

It is highly probable that in the twenty-five years preceding the panic of 1873, owing to the progress of invention, those industries in the United States employing much machinery were unduly stimulated in comparison with other industries, and that the readjustment was a slow and painful process. After the collapse vast numbers left the manufacturing to enter the extractive industries.


The argument relied on by most of those who contend that machinery can never be injurious to the laboring-class is, that by cheapening production it creates such an increased demand for the commodity as enables, ere long, a greater number of persons than ever to find employment in producing it. The argument does not seem to me to have the weight commonly ascribed to it. The fact, though too broadly stated, is, no doubt, often true. The copyists who were thrown out of employment by the invention of printing [pg 096]were doubtless soon outnumbered by the compositors and pressmen who took their place; and the number of laboring persons now employed in the cotton manufacture is many times greater than were so occupied previously to the inventions of Hargreaves and Arkwright, which shows that, besides the enormous fixed capital now embarked in the manufacture, it also employs a far larger circulating capital than at any former time. But if this capital was drawn from other employments, if the funds which took the place of the capital sunk in costly machinery were supplied not by any additional saving consequent on the improvements, but by drafts on the general capital of the community, what better are the laboring-classes for the mere transfer?

There is a machine used for sizing the cotton yarn to prepare it for weaving, by which it is dried over a steam cylinder, the wages for attendance on which were only two dollars per day, as compared with an expenditure for labor of fourteen dollars per day to accomplish the same ends before the machine was invented.


All attempts to make out that the laboring-classes as a collective body can not suffer temporarily by the introduction of machinery, or by the sinking of capital in permanent improvements, are, I conceive, necessarily fallacious.111 That they would suffer in the particular department of industry to which the change applies is generally admitted, and obvious to common sense; but it is often said that, though employment is withdrawn from labor in one department, an exactly equivalent employment is opened for it in others, because what the consumers save in the increased cheapness of one particular article enables them to augment their consumption of others, thereby increasing the demand for other kinds of labor. This is plausible, but, as was shown in the last chapter, involves a fallacy; demand for commodities being a totally different thing from demand [pg 097]for labor. It is true, the consumers have now additional means of buying other things; but this will not create the other things, unless there is capital to produce them, and the improvement has not set at liberty any capital, even if it has not absorbed some from other employments.

If the improvement has lowered the cost of production, it has often required less capital (as well as less labor) to produce the same quantity of goods; or, what is the same thing, an increased product with the same capital.


§ 3. —This seldom, if ever, occurs.

Nevertheless, I do not believe that, as things are actually transacted, improvements in production are often, if ever, injurious, even temporarily, to the laboring-classes in the aggregate. They would be so if they took place suddenly to a great amount, because much of the capital sunk must necessarily in that case be provided from funds already employed as circulating capital. But improvements are always introduced very gradually, and are seldom or never made by withdrawing circulating capital from actual production, but are made by the employment of the annual increase. I doubt if there would be found a single example of a great increase of fixed capital, at a time and place where circulating capital was not rapidly increasing likewise.

In the United States, while the cost per yard of the manufactured goods has decreased, and so made accessible to poorer classes than before, the capital engaged in manufactures has increased so as to allow a vastly greater number of persons to be employed, as will be seen by the following comparison of 1860 with 1880 taken from the last census returns. (Compendium, 1880, pp. 928, 930.)

Number of establishments. / Capital (Thousands). / Average number of hands employed. / Total amount paid in wages during the year.

1860 / 140,433 / $1,009,855 / 1,311,246 / $378,878,966
1880 / 253,852 / 2,790,272 / 2,732,595 / 947,953,795

“A hundred years ago, one person in every family of five or six must have been absolutely needed to spin and weave by [pg 098]hand the fabrics required for the scanty clothing of the people; now one person in two hundred or two hundred and fifty only need work in the factory to produce the cotton and woolen fabrics of the most amply clothed nation of the world.”112


To these considerations must be added, that, even if improvements did for a time decrease the aggregate produce and the circulating capital of the community, they would not the less tend in the long run to augment both. This tendency of improvements in production to cause increased accumulation, and thereby ultimately to increase the gross produce, even if temporarily diminishing it, will assume a still more decided character if it should appear that there are assignable limits both to the accumulation of capital and to the increase of production from the land, which limits once attained, all further increase of produce must stop; but that improvements in production, whatever may be their other effects, tend to throw one or both of these limits farther off. Now, these are truths which will appear in the clearest light in a subsequent stage of our investigation. It will be seen that the quantity of capital which will, or even which can, be accumulated in any country, and the amount of gross produce which will, or even which can, be raised, bear a proportion to the state of the arts of production there existing; and that every improvement, even if for the time it diminish the circulating capital and the gross produce, ultimately makes room for a larger amount of both than could possibly have existed otherwise. It is this which is the conclusive answer to the objections against machinery; and the proof thence arising of the ultimate benefit to laborers of mechanical inventions, even in the existing state of society, will hereafter be seen to be conclusive.113
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